Today, I received in the post a performance statement for a endowment insurance policy I took out 11.5 years ago. €63.49 (or 50 of old money) paid monthly into a policy to mature after 20 years.
Usually they get rapidly filed away, but I decided for a change to do a personalised performance assessment and I do stress personalised – this aint coming from the book of how to assess investment performance.
Performance Yardstick 1: Current Investment Value vs Money put in
Firstly, lets look at what we have put in versus what the policy is now worth.
- €63.49 invested into the fund for 11.5 years amounts to €8,761.62.
- The current value of the fund is listed at €7,254.60
Doesn’t look the best, does it?
Now even if we allow for the fact that the broker who sold you the policy gets the 1st years premium, and as it’s a assurance policy (i.e. an amount is guaranteed on your death) we’ll be generous and say that costs another years premium, we are still showing no growth on the policy.
Performance Yardstick 2: Guaranteed future value versus encashment
The company also provides us with a guaranteed future value.
For my policy, this is €14,749.
The current encashment value of my policy is €7,255
If I were to encash my policy and investment my future monthly premiums of €63.49 into a deposit account with no fees and 0% interest, this would amount to €13,731.
This minimum guaranteed encashment value is equivalent to roughly a 1.1% annual investment return. Personally, I think this is something you could live with depending on your risk profile, but you’d probably want to know more about how much of the potential upside you would share in.
Performance Yardstick 3: Future Investment Value based on illustrated growth rates
Things haven’t gone well to date, but my investment company have provided 2 illustrations of future growth and how much the plan would be worth at this investment growth rates. These are provided under instruction from the regulator for guidance purposes. My investment manager provided these at 4.5% and 6.5% annual growth rates.
Let’s look at their estimated future value of the fund at a investment growth rate of 4.5%. This is €16,500.
Let’s be careful not to assume that this amount equates to my current fund value + future contributions growing at 4.5%, because there are costs to account for of course. Having cracked together a few hard numbers, I have calculated that €16,500 equates to a annualised return of approximately 2.8%. so that’s roughly 1.7% of fund growth disappearing in fees, or about €1,900.
So should i cash in my Policy?
let’s be honest about this – most of us invest in policies such as this one so that we don’t touch the money – very few people have the self control to have money in touching distance and not find something they could spend it on.
And in our instance, we’d really like to get double glazing in, but are lacking that type of money at hand, even with us putting together such a huge heating bill last year.
what do you think?
So I’d love to hear what ye guys out there think: would you recommend cashing in this policy and getting the windows done or leaving it in the hands of the investment manager for another 8.5 years?