Ms Anna was referred to me by David, a Happy Client of mine. They were good friends from their social circle and in a very similar situation. As I have previously helped David with his own retirement planning, it was through his personal introduction that I got Anna’s contact. He had “warned” me beforehand that he wasn’t sure if Anna would buy anything, since she had taken up a plan recently. In any case, I couldn’t do anything unless I first have a discussion with Anna and get more information from her. Anna had no problem trusting me to her policies information, so prior to our first meeting, she sent me what she could gathered in order I could do an initial analysis. After receiving her email, I then understood why she wanted to get some help. In overall, she had a total of 11 policies with an annual premium of $37,320.

Our first meeting was a fruitful one. As my usual business practice, it was always important for me to understand the motivation behind my client’s decisions for the different plans he/she has taken up over the years. Anna had been a kind person, and there were many endowments plan she had taken up to “support” her friends, which explains the high annual premiums. But of course, retirement savings was also one of her key concerns, as she has to plan for her own future retirement. She hopes to retire by Age 50 if possible, so that she could devote her time to her religious pursue, Hence, with very details information that she had provided me with, the overall present situation was as such (excluding coverage from endowment plans):

Death/TPD Coverage: $160,000
Critical Illness Coverage: $110,000
Guaranteed Retirement Income: $5,900/yr from Age 60 for life

A key reason why she wanted to seek a second opinion was because she felt her commitment for her insurance policies were too high. She was even thinking of cancelling some of her plans if necessary. During a recent visit to a bank, she was offer a plan from an insurance company. And because the plan was so “good”, the Relationship Manager suggested that she could surrender 4 of her endowment plans for their cash value, in order to make a Single Premium payment for the retirement plan. And from Age 50 onwards, she could receive a retirement income of up to $6,000/yr, for life. The figures actually looks good, with a projected breakeven of 8-9 years. However, she was quite “shocked” at the advice given, and didn’t felt comfortable to go ahead as she wasn’t sure if that was the best solution.

Although she wanted to have clarifications over her existing plans, she recognised after a well summarised overall coverage that she was kind of lacking in her Critical Illness coverage, despite paying an Annual Premium of ~$37k. We discussed about her opinion on her overall CI coverage required ideally, and agreed on the following:

Replacement of Living Expenses: $36,000/yr
Years of Income Required: 5 years
Cost of Medical Treatment: $80,000
Existing Critical Illness Coverage: $110,000
Shortfall: $139,815

As her case was more complicated, I had to put in some thoughts and help to do some proper planning, before I know if I can deliver a solution that suits her needs. But yet at the same time, I had to be mindful on her total annual premium that she was already committing. Nevertheless, with a clear understanding on her current situation, and her concerns on Critical Illness coverage, Retirement Planning and her ideal retirement age of 50, the job was made easier.

Summary of her Endowment Plans:

(A) 24 Year Endowment
Commenced: 1997
Maturity: 2021
Annual Premium: $2,844
Total Cash Back: $24,000
Projected Maturity: $59,434
Total Premium Outlay: $68,256
Total Returns: $83,434

(B) 20 Year Endowment
Commenced: 2002
Maturity: 2022
Annual Premium: $4,762
Premium Paid Till Date: $61,912
Current Surrender Value: $44,747
*Projected Maturity: $93,248
*Projected based on allowing policy to self-finance using existing and future cash advances

(C) 25 Year Endowment
Commenced: 2003
Maturity: 2028
Annual Premium: $4,470
Premium Paid Till Date: $53,640
Current Surrender Value: $30,863
*Projected Maturity: $86,978
*Projected based on allowing policy to self-finance using existing and future cash advances

(D) 25 Year Endowment
Commenced: 2007
Maturity: 2032
Annual Premium: $6,043
Premium Paid Till Date: $48,345
Current Surrender Value: $31,859 (Inclusive of Cash Advances)
Premium Paid Till 2020: $78,560
*Projected Maturity: $99,766
*Projected based on payment till Year 2020 and allowing policy to self-finance using existing and future cash advances

Basically, Endowment (A) is completing soon, hence, there was no reason not to see it out. However, based on reasonable assumptions and projections, the other 3 endowment plans (B/C/D) which constitute $15,275/yr could actually be self-financed. An immediate surrender of all the plans will result in a net loss of $56,428 (Total Premium Paid Till Date is $163,897). When all these 3 plans are held till maturity, Anna could then potentially realize a net returns of $85,880 instead! (Total Premiums Paid $194,112).

Therefore, 2 separate plans were recommended. A Whole Life policy with an Annual Premium of $2,963 for 15 years, covers her for an additional Early Stage Critical Illness coverage of $105k.

As Anna’s portfolio consisted of a reasonable amount of guaranteed retirement income (CPF Life plus $5,900/yr from Age 60), and also Endowments (A/B/C/D) maturing at Age 51, 52, 58 & 62), she agreed that she should seek some growth via an Investment-Linked Policy, with an Annual Premium of $5,000 for 10 years, to help save for her retirement planning and also covering her for additional Critical Illness protection of $50k.

With these information, and the fact that Endowment (B) will mature when she is Age 52, her retirement cashflow could estimated as reasonably as possible, based on delaying her retirement by 2 years and her lifestyle expenses during retirement. See below on the illustration that was done up specifically for her scenario:

Updated Coverage
Death/TPD Coverage: $315,000
Critical Illness Coverage: $265,000
*Annual Premium: $36,051
*Less 2 endowment plans that could self-financed immediately

In conclusion, without affecting her existing endowment policies, Anna was in fact able to make use of the same budget to increase her Critical Illness protection, while also increasing her retirement savings at the same time. The cashflow illustrated gave her clarity and confidence that she could in fact comfortably retire by Age 52 (if she chooses to), though not Age 50 as desired. Her understanding of her entire portfolio increased tremendously, and she was definitely clearer on her future retirement planning, with peace of mind and confidence of more financial success.

NB: Information presented is correct as on Dec 2015.

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