10 Best Endowment Plans in Singapore: Short & Long-Term Plans

Policy Term

Some endowment plans require you to park aside your money for a specified period of time, known as the policy term. 

This holding period should be considered carefully because if you were to surrender your plan early, you might incur losses and may not even get your initial capital back.

Once the policy matures, most endowments usually guarantee your capital at least. 

More details on your estimated maturity value can be found in the policy illustration, varying across companies and products.

Some plans offer a policy term in multiples of 5, while others let you select from a range of years giving you the flexibility to choose the specific age you want your plan to mature. 

If you’re saving up for a specific goal like children’s education, house upgrade, starting your own business, etc., consider selecting a plan with a policy term that ends closest to when you would need the money to maximise your returns. 

Apart from fixed maturity endowments, there are also whole-life endowments that only mature when you’re above 100 years old in the market.

These plans are usually designed for those looking to leave an estate for future generations.

Long- vs Short-Term Policy

In the past, endowment plans were long-term with minimum commitment periods of 10 years or more. 

But over the years, insurers have been launching short-term endowment plans with a term of 3 years or less. 

If you’ve no immediate need for your money but don’t want to lock your money for the long term, these short-term plans are worth considering, as they enjoy interest rates that are generally higher than the bank. 

Do note that these short-term endowments are usually launched on an ad-hoc basis with limited quantities, so the fastest fingers first.

Opting for a plan with a shorter term does come with a trade-off – which is that the returns may not be as attractive as a long-term plan. 

This is due to the concept of compound interest, where you earn interest on your interest. 

With this, generally the longer you hold an investment, the better your returns.

Premiums

Premium Amount

Endowment plans make your money work harder for you. 

But it’s not just about throwing all your cash on hand into an endowment product because as mentioned, an early surrender could lead to losses. 

The rule of thumb is to ensure that you’ve set aside emergency savings, usually 3 – 6 months of your annual income before you start investing. 

Remember to select a premium amount that is within your means. 

If you’re unable to finance your premiums, your plan will lapse, which could mean losing the premiums you’ve paid thus far.

Whether your budget is $100 or $100,000, there is a plan for everyone. 

Different products have different maximum and minimum premiums, so do take note of this.

Premium Term – Regular vs Single Premium

If you have a lump sum of money readily available, you can choose to pay your premiums in a single premium, and just leave your money to roll and accumulate.

But fret not, even if you don’t have a large sum of money set aside, you can still opt for regular premium plans, where you pay your premiums for a certain number of years. 

This premium term can be as long as your policy term or shorter. 

With a regular premium plan, you might also have the option to choose how often you’d like to pay premiums in a year. 

Premium frequency options range from annual, biannually, quarterly, or monthly.

If you find yourself living paycheck to paycheck, consider investing in a regular premium product, as a form of forced savings. 

While you enjoy life in the current moment, it’s good to pay your future self so that you can enjoy in the future as well.

Regardless of the premium term, the earlier you fully pay up your premiums, the longer time that your money has to grow.

Protection

Another name for endowment plans are insurance savings plans, and as their name suggests, there is an element of protection in endowments. 

Do note that the level of protection offered by endowments is not very high and is usually a percentage of the total premiums paid or the surrender value. 

This level of coverage is insufficient if it is your only life insurance policy. 

However, it is good if you are more focused on investment, but still want some coverage to complement your existing coverage.

If you’re looking for a protection plan, a whole life insurance or term life insurance plan might be better suited for your needs rather than an endowment plan.

Liquidity

Cash Payouts

For those who want to grow their monies, but also want to ensure some liquidity for small indulgences or to help you pay off your liabilities, some endowments come with a feature that provides you with cash payouts.

These payouts are usually a small percentage of your plan’s face value, often ranging between 3 – 5%. 

The face value is usually calculated based on a percentage of the total premiums you’re expected to pay and varies across plans.

Payouts are usually paid annually, but some plans might offer a monthly option.

These plans usually allow you to choose whether you want to receive the cash payouts or leave them in the plan to accumulate, letting you start or stop the payouts as and when you require.

There is a give and take if you do choose a plan with this feature, and that is that your returns may not be as high as a plan that does not provide payouts.

If you’re looking for cash payouts, although some endowment plans allow for this, they’re not designed for it.

You can consider getting an annuity policy instead if cash payouts are your thing.

Premium Loans

In the event that you really need the money urgently, but do not want to surrender your plan, some plans allow you to withdraw some money from your plan and take a premium loan.

Doing so might affect the long-term value of your plan as you’re reducing the value inside your plan, meaning that the interest you earn would not be as high. 

Most insurers will also charge interest on the loan that you take from your policy, which would need to be paid back. 

If not paid back, this interest will be deducted from your maturity payout at the end of your policy term.

If the interest incurred exceeds the surrender value in your plan, it will terminate and you would not get back anything, and lose your capital. 

So, if you do take a premium loan, do monitor it to minimise any possible losses.

Partial Withdrawal / Surrender

In rare cases, some plans offer you the option to partially surrender some of the cash value in your plan, without having to pay it back or incur an interest. 

Be careful not to mix up this option with the premium loan option. 

If you’re unsure, it’s always good to consult your financial advisor. If you don’t have one, we can always link you up with an advisor. 

A partial surrender will also affect the plan’s maturity value, so do consider all your options before you choose to exercise this option.

Expected Returns 

Participating Fund Performance

Insurance savings plans take part in the participating fund of the insurer. This fund invests in various instruments and assets which differ across insurers. 

Your premiums are pooled together and invested into this fund. 

Depending on the performance of the fund, bonuses would be declared and added to your plan, which makes up a portion of your returns.

Looking at an insurer’s par fund performance will give you a rough gauge of how likely they are to actualise the returns illustrated in the policy document, or perform better. 

However, do also note that past performance is never an indicator of future performance.

Guaranteed vs Non-Guaranteed Returns

In the illustration provided by the insurer, the cash value is split into 2 – a guaranteed and non-guaranteed portion. 

The guaranteed return is the minimum amount the insurer promises to return you if you surrender your plan or when your plan matures. 

The non-guaranteed portion provides an estimate of any additional returns that you might get from your plan but there is no full guarantee that you’ll receive this. 

It can be affected by the participating fund performance, expenses incurred, and the claims and surrender experience of all participating products under the insurer.

It’s recommended to take note of the guaranteed returns. 

At maturity, you’d want your guaranteed returns to at least be able to beat your maturity payout. 

After all, there is an opportunity cost if you choose to lock your money in an endowment instead of another investment instrument such as an investment-linked policy. 

If your guaranteed returns can’t beat your capital, your capital is at risk if the plan’s non-guaranteed returns are not realised.

A good rule of thumb is to check the policy/benefit illustration and check which year you’ll “breakeven” if any.

The breakeven year is determined by when your guaranteed returns are equal to your total premiums paid.

Others

Supplementary Benefits

Premium Waivers

Most plans allow you to add on premium waivers in the event of disability or critical illness at a nominal fee. 

It’s generally recommended to add these waivers to prevent your plan from lapsing in the event that you’re unable to work and fund your premiums due to disability or illness.

Not only do you lose your capital if your plan lapses, but you lose time as well. 

Personal Accident

You might also be able to add personal accident riders to your plan as well.

These riders usually cover medical bills and traditional Chinese medicine bills incurred due to accidents. 

Some might even cover certain illnesses like food poisoning and dengue fever.

For more details, refer to the policy document or ask your financial advisor.

Death/TPD/TI