Wednesday February 19, 3:45 PM
A UNIQUE ENDOWMENT PLAN WITH CASH BACK BENEFITS
By Vasu Menon, Chief Editorial finatiQ
Interest rates are very low currently and may not pick up anytime soon. Leaving cash idle in bank deposits make little sense especially when returns are meagre. Most alternatives for better returns (eg. single premium endowments) require you to tie up your cash for longer periods. But you are concerned about the liquidity risk and potential losses if you have to liquidate your investments prematurely. This can happen in uncertain times when unforeseen events result in the need for cash.
To overcome the liquidity risk that comes with single premium endowment policies, Overseas Assurance Corporation (OAC) has launched an innovative and unique plan called the EasiCash Saver.
This plan will return 10% of your initial capital back to you on a yearly basis over a number of years. Yet, it offers 125% life coverage based on the full initial capital regardless of how much cash has been returned to you.
Let's assume you take up a $10,000 single premium six-year plan. With EasiCash Saver, you will get back $1,000 per year from the end of the second policy year and this will continue to the end of the fifth policy year. By the end of the sixth and final year, when the policy matures, you would have received $4,000 back. Upon maturity, the remaining sum of $6,000 is returned. Plus you stand to enjoy a projected bonus of $1,230 at maturity. This effectively works out to a yield to maturity (YTM) of 2.31% p.a. over six years.
EasiCash Saver (Based on $10,000 single premium)
| Year 1 |
$10,000 |
NA |
NA |
| Year 2 |
NA |
$1,000 |
NA |
| Year 3 |
NA |
$1,000 |
NA |
| Year 4 |
NA |
$1,000 |
NA |
| Year 5 |
NA |
$1,000 |
NA |
| Year 6 |
NA |
$6,000 |
$1,230 |
A minimum of only $8,000 is required to invest in the EasiCash Saver. For investments up to $39,999, the projected YTM is 2.31% for the six-year plan. For investment amounts between $40,000 and $99,999, the projected YTM is 2.41% while amounts of $100,000 and above are expected to yield 2.51%. These returns are attractive relative to current long term fixed deposit rates.
Investors who are not concerned about liquidity can choose not to have the 10% per annum cash back and may choose to re-invest the payout at OAC's current accumulation rate of 4% p.a. (rate is not fixed and may be subject to changes by OAC). But investors can still choose to withdraw the accumulated cash back amounts anytime, should there be a need to.
For investors who choose to accumulate their cash back benefits, the YTM will be higher and range from 2.57% p.a. to 2.74% p.a..
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