• Lionel Lye

"The recession risk is real." Someone out there has already started making money, but we are still..

Updated: Apr 30, 2020

But we are still in the dark. Why? Continue reading to find out.

Since March this year, there has been a frequent phrase in global financial markets:

The risk of a recession is real.

Many of my friends who used to invest heavily in the stock market are anxious: where should they put their extra cash in hand?

I have a friend who had invested in the stock market for many years and bought a lot of universal endowment plan at the end of each year.

I was wondering, why an experienced investor like him would give up a 10% to 20% of the rise and fall in the market, but instead putting money into universal endowment plan that yields around 4% of its return? Is this a risk-free approach, or that he has lost his risk appetite?

Well then I found out, this has nothing to do with individual factors. But, the change of the investment environment that led them to make this rational choice.

The main reason he gave me at the time was that in the past, his goal was to get higher returns. And now, the strategy has changed. He is going to start protecting the fruits of his labour because the market cycle is bound to change!

Sure enough. Over the years, a more significant crisis is in front of us. Recently also I have another friend who texted me and asked, is it a good idea to go for a universal endowment plan? What is the difference between a universal endowment plan and other ways of investing?

Let's put it this way: A universal endowment plan is a long-term stable compound interest cash flow, unlike all other financial instruments.

Let me break it down and get a good understanding of this below:

1. Long-term

A universal endowment planning period can be as long as ten years. The long period of investment is ignoring the returns as it hurdles pass one economic cycle after another. It is giving you peace of mind through the financial crisis repeatedly.

2. Stability

When we look at the terms of the universal endowment plan, what we must be concerned about is its benefits. Whether it's a predetermined interest rate of 3.25% or 3.5% or a universal account guaranteed rate of 3%-3.5%. The contract is clearly stating these numbers.

All are representing the bottom line of its earnings, describing how much money we can have in the future. This money, during an economic downturn, will at least provides us with a minimum guaranteed income.

3. Cash flow What is the cash flow?

To put it bluntly, we have money in our pockets that we can spend at any time, the money we can continue to have after spending. This money sustains our daily lives, giving us a sense of security, happiness." At the time of investing, we can plan for our annuity cash flow, as known as yearly guaranteed cash payments. For example, how would you receive your payouts, at the end of each policy year after specific years?

This guaranteed cash payment is a percentage of your basic annualised premium that is payable to you. Provided that, we have paid all the respective year's basic premium and overdue premium interest. These cash payments will be allocated until Death, Total Permanent Disability (TPD), surrender or maturity, whichever occurs first.

Well, we can certainly be guaranteed to receive the money. We do not need to worry about lacking this portion of money with this regular income we are going to gain. Is it not the comfort we seek?

4. Compound interest

I am sure we have heard of compound interest during this period where Bank Negara Malaysia had announced the bank moratorium. In simple words, compound interest means the interest of interest. There are many opportunities in our lives to deal with compound interest, but most of the time we are not as a creditor, but as a debtor.

Often, we borrow money from banks. We swipe credit cards. Spending within our credit limits, and so on, when we are paying back on the money we owe in instalments, the interest is compounded. Creating a snowball effect if you cannot repay. However, when we are investing, we rarely gain on compound interest.

The good news is that the universal endowment plan is one of them. The value in the additional universal account is calculated by compound interest accumulation. Itself is long-term planning, plus compound interest roll-over, creating an exponential growth, the future of this kind of products is entirely worth looking forward!

5. Death and total permanent disability benefits

You can never tell when the untoward may occur. With Universal endowment plan, you and your loved ones will be protected against the unforeseen. In the incident of Death due to non-accidental causes; or TPD due to all reasons which occur before the policy anniversary of specific age years next birthday.

This payout can be useful as beneficiaries will receive them within a short period. I will explain more about what happens to a person's assets when they die in future.


One of the earliest universal endowment plans in Malaysia was back in the '90s. At that time, the bank demand deposit rate was on the rise. The actuaries or the pricing team that designed such products have to refer to the bank interest rate, basically around 5-8% (Malaysia Interest Rate | 2004-2020 Data | 2021-2022 Forecast | Calendar | Historical, 2020). Now, more than 25 plus years later, the global financial crisis has gone through several cycles, and high-yield savings account are long gone. But then at the same time, this insurance product is still quietly playing a role, with 3-5% of the returns which can potentially be an heirloom. Now, You would ask me, should I go for a universal endowment plan after learning the advantages? My answer to everyone is always the same. If you have extra cash in hand. And already had a solid protection plan which includes your medical and health insurance, income replacement as well as life insurance, then go for it. I will talk more about how we can build solid financial planning in my next post. There is a story behind this.

Once upon a time, a loyal worker was working for the boss, the boss said: "I will give you twenty kilos of rice every month." The worker counter-offered and replied: "I have an idea, the first day you give me a grain of rice, the next day, two, the third day, four ..." Doubling the number of times every day as long as he is still working for his boss. The boss thought the worker must be out of his mind. Nevertheless, he accepted. Do you think the loyal worker was able to get all of his landlord's granary in the end? The answer is No, and it's more likely that the loyal worker will starve to death in less than ten days. Many times, we see the great temptation of long-term planning and compound interest but ignore the cost of pursuing such "compound interest." We have contacted a lot of friends or clients who have bought a universal endowment plan from various companies. Initially, in general, they feel that the annuity is perfect and wanted to get more. After a few years, they found out that the pressure of this commitment is getting larger, yet they cannot surrender their policy. Otherwise, they may get back lesser than the amount they have paid. So before getting a universal endowment plan, by taking the lesson from the metaphor above, we must make sure there is enough food on the table, opposite of what the loyal worker did! You must have extra cash in hand and the ability to maintain your daily expenses before you sign up for the plan. In conclusion, after having a clear concept of the universal endowment plan and it's advantages such as a long-term, stable, compound interest cash flow. We can consider getting it provided that we have extra cash in hand and solid insurance protection plan. You should satisfy yourself that these plans will best fulfil your needs and that the premium to be paid under the policy is an amount you can afford.

Would you like to know more? Contact us today for a no obligation discussion. 2020.Malaysia Interest Rate | 2004-2020 Data | 2021-2022 Forecast | Calendar | Historical. [online] Available at: <> [Accessed 8 April 2020].

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