How to Find the Best Endowment Insurance Plan
Endowment insurance is a combination of a savings plan and a life insurance plan. If you are having trouble setting money aside per month and would like a form of forced savings, endowment plans may be a good option for you. At the end of the policy, you will get a lump sum that can be used for anything you want, whether it's a vacation, home purchase or business venture. However, because it has a life insurance component as well (coverage for life, terminal illness or total and permanent disability), endowment insurance also recommended for people who either want to fill in a pre-existing life insurance coverage gap or who don't mind having a bit of life insurance coverage. If you are interested in getting an endowment plan, read our guide to find out how to choose the right plan for you.
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Different Types of Endowment Plans
Endowment plans come in a variety of shapes and sizes. Some have a maturity date as low as 4 years, while others have a maturity date of 25 years. Some require you to pay premiums once, while others let you spread out your premiums over many years. Endowment plans also come with different goals in mind, such as retirement savings, education savings or income supplementation. The first thing you should do to narrow down your search is to really understand what you want to get out of a savings plan. If you don't know where to start, below we outline some common types of endowment plans.
Traditional Endowment Plans
The bulk of endowment plans in Singapore are traditional endowment plans that provide medium to long-term savings and a basic life insurance component. These plans don't promise to benefit a particular demographic and will provide a lump sum at the end of policy maturity. Some endowment plans also offer an annual cash benefit after a certain number of years and can be useful if you would like to get extra income every year. However, you are not obligated to take the annual payments and can instead reinvest them into the policy to hopefully see higher returns when your policy matures. If you are looking just to save money for personal goals, then these simple endowment plans can be a good fit.
Retirement Savings Plans
Some endowment plans are marketed as retirement savings plans. They can be useful to people who are looking for extra income during their retirement years. These plans (also called annuity plans) will pay out a particular sum from your policy annually or monthly. They will let you choose your retirement age, premium payment term and how many years you want your payouts to last. Depending on the plan, you may be able to dictate the sum you want paid out, which will determine your premiums. These plans will also be eligible for potential bonuses, which will be added to your guaranteed income. Additional features of retirement endowment plans include additional income if you become disabled. You may even be able to pay for some of these plans with funds from your Supplementary Retirement Scheme (SRS).
Education Savings Plans
Some endowment plans are marketed towards new parents who want to save for their child's education. You can choose between two policy maturity dates depending on when you want your child to get the payout. The life insurance component of this policy will cover your child, so if they die, you will get a payout. These plans are anticipated endowment policies, which means you will receive part of the sum assured at pre-specified times throughout the policy's term. Most education endowment plans have 6 payout terms, with a few before the policy matures and a couple after the policy matures. You are not obligated to take the cash payouts and instead can choose to reinvest them to get a potentially larger return when the policy matures.
Education savings insurance can be a good choice for parents who are worried about saving for their child's education or are looking to send their children to universities abroad, where tuition may be much higher and won't be eligible for the domestic tuition benefits.
Legacy Savings Plans
Endowment plans can also be tools to save and pass down money to future generations. These plans let you pass on your policy to children and spouses so they can benefit from the savings you put in after you pass. Legacy savings plans are whole life policies, which is different from the standard term life policies of most endowment plans. This means you will pay premiums for a certain amount of time and be covered until the policyholder passes away. Legacy plans can be good options if you want to leave an inheritance for your children or if you want the policy to continue for your spouse.
Paying for Your Endowment Plan
Once you know what kind of savings plan you need to adequately save for your financial goals, you should consider the amount of time you want to spend paying into the plan. Endowment plans have fixed premiums, so you won't be subject to price fluctuations. Some insurers also give you the option of paying monthly, semi-annually or annually. Most plans have a combination of policy terms and premium payment terms which makes it easy to customise a fitting plan. Overall, there are 3 types of payment types endowment policies utilise: regular pay, limited pay and single premium.
Regular Pay Endowment Plans
Regular pay endowment plans require you to pay premiums throughout the entirety of your policy. For example, if your policy has a term of 10 years, you will have to pay premiums for those 10 years. If you are looking to spread out your payment over a longer period of time in exchange for lower premiums, this can be a good type of plan to consider.
Limited Pay Plans
Limited pay endowment plans require you to pay premiums for only part of your policy term. For instance, you only pay premiums for 3 years but the policy will mature in 10 years. This can be a good option for savers who have a bit more cash on hand and would prefer to not get tied up in long-term payment commitments.
Single Premium Plans
If you want to deposit one sum of money and watch it grow over time, then you might want to consider single premium plans. You can find single premium plans that provide both long-term and short-term savings opportunities. For instance, Etiqa's Tiq eEASY Save V offers a single premium option and a 6 year maturity, whereas Income's WealthSolitaire plan is a whole life policy (your policy matures when you turn 100). If you have a large sum of money you'd like to save in a relatively risk-free environment, single premium plans can be a good option to consider.
Endowment Plan Features & Caveats
In addition to knowing what kind of plan best suits your needs and your desired financial commitment, it is also important to understand the smaller details of each plan. For instance, some plans include miscellaneous features like annual cash benefits or optional riders. Another important thing to consider is the structure of the investment returns, for instance whether the policy is participating or non-participating and the type of returns it guarantees. Lastly, you want to consider the credit rating of the insurer to ensure you are investing with a financially sound company.
Participating vs. Non Participating Plans
Endowment plans are broken up into two types of plans: participating and non-participating. Participating endowment plans will pay out two types of sums upon policy maturity: a guaranteed sum and a non-guaranteed sum. A non-guaranteed sum comes in the form of cash bonuses that are dependent on the insurer's fund performance. The reason it is non-guaranteed is because if the fund performs poorly, you may not get any bonus for that year. On the other hand, if a fund performs very well, you may receive a sizable bonus when the policy matures. Any bonuses added to the policy become guaranteed and can not be taken away. In general, participating plans are more common than non-participating plans.
A non-participating plan will only pay guaranteed benefits. You will not be entitled to bonuses since your premiums will not be invested into the insurer's fund. This type of policy may be better for risk-averse savers.
Differences Between Par and Non-Par Plans
| Participating | Non-Participating | |
|---|---|---|
| Coverage | Death & Terminal Illness/Disability | Death & Terminal Illness/Disability |
| Optional Add-ons | Yes | Yes |
| Cash Value | Guaranteed benefits + non-guaranteed benefits | Guaranteed benefits |
| Cash Bonuses | Yes (guaranteed + non-guaranteed portions) | No |
| Investment Risk | Yes | No |
| Expense Risk | Yes | No |
| Mortality Risk | Yes | No |
Potential Returns of the Plan
One danger of endowment plans is that you may not get back what you put in. Not only do some of your premiums go towards paying for the life insurance portion of the policy, but the invested portion is subject to risk. Thus, it is possible that you may lose on your investment. Furthermore, you should note that the illustrated returns (typically a 4.75% and 3.25%) are not the actual returns of your policy. If the insurer's fund receives a 4.75% return, your actual return will be lower (from our data, we saw it ranges between 1.8%-4.05%).
Because of this, we recommend you look for plans that guarantee a 100% capital return. This means that at policy maturity, you are guaranteed to get back at least all of your premiums.
Payout for 100% Capital Guaranteed Plan vs. No Capital Guarantee Plan
| Inputs | Singlife with Aviva MyChoiceSaver Plan (100% Capital Guarantee) | AIA Smart Wealth Builder (100% Capital Guarantee) |
|---|---|---|
| Annual Premium | S$5,005 | S$5,000 |
| Premium Payment Term | 25 Years | 20 Years |
| Policy Term | 25 Years | 25 Years |
| Total Premiums Paid | S$125,103 | S$125,000 |
| Prospective Yield to Maturity | 2.17%-3.76% | 0.12%-1.56% |
| Guaranteed Payout | S$141,000 | S$71,183 |
| Data Source: comparefirst.sg | ||
Annual Cash Benefits
Some endowment plans, categorised as anticipated payment plans, offer annual cash payouts after a certain number of years. This can be beneficial for savers who need extra cash in addition to a savings plan. These types of plans appear in all types of endowment plans, from legacy saving plans to education plans. Traditional endowment plans that aren't marketed towards retirement or education savings will start providing annual cash payouts of around 1.8%-10% of your sum assured after a certain number of years. You are not obligated to take these payouts and can choose to reinvest them back into the fund instead. When your policy matures, the lump sum will be the sum assured minus any cash payments you withdrew during the policy period.
Insurance Company's Creditworthiness
You should also consider your insurer's credit rating. Credit ratings are used to determine the insurer's financial strength. Because credit agencies (like Standard & Poor, Fitch, Moody's) may disagree on credit ratings, you should look at all the credit ratings an insurer has to determine which insurer you want to go with. The better the credit rating, the better the ability for the insurer to pay your claims. However, it does not assess the strength of the insurer's investments. For that information, you should read the plan's policy wording or get the documents from a financial advisor if the policy documents aren't readily available online.
Optional Riders
Endowment policies also provide the option of adding riders to their policy. Most riders are premium waivers that will free you from payment obligations if you become disabled or diagnosed with a critical illness. Education endowment plans may also provide a payor premium rider that will waive your premiums but keep your child under the policy if you pass away. In some cases, some insurers also provide critical illness or disability riders that will pay out a lump sum if you are diagnosed with a disability or critical illness during the policy period.
Alternatives to Endowment Plans
If you are looking for protection coverage only, then you should consider term or whole life insurance. Endowment insurance may not provide enough life coverage for your needs.
If you want easy access to your savings, you can opt for a traditional savings account or fixed deposit account. Savings accounts are safer than endowment plans since they have minimal financial risk involved, but you have to be diligent in continually contributing to the plan and you'll have to meet certain criteria to qualify for an accounts maximum effective interest rate.
| Landscape of Maximum Effective Interest Rates, Singapore Savings Accounts | |
|---|---|
| Average EIR | 1.43% p.a. |
| Highest EIR | 3.65% p.a. |
| Median EIR | 0.87% p.a. |
| Lowest EIR | 0.08% p.a. |
On the other hand, you can get a fixed deposit account if you have a certain amount of money accumulated and you want to temporarily keep it somewhere safe. Fixed deposit accounts are low-risk savings accounts that mature after a certain period of time (similar to endowment plans without the life insurance portion). They are less risky than participating endowment plans because the rate of return is guaranteed. Since there are no limits to fixed bonds, they are ideal options for very wealthy customers.
You should keep in mind that endowment plans are long-term commitments and require significant financial responsibilities. If you surrender your policy early you may not get the amount you invested and be subjected to surrender charges. You should consider speaking to a financial advisor to make sure the policy you are getting will help you achieve your financial goals. If you would like to learn about the products that are available on the market, read our guide to the best endowment plans in Singapore.
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Anastassia is a Senior Research Analyst at ValueChampion Singapore, evaluating insurance products for consumers based on quantitative and qualitative financial analysis. She holds degrees in Economics and International Business Management and her prior working experience includes work in the capital markets sector. Her analyses surrounding insurance, healthcare, international affairs and personal finance has been featured on AsiaOne, Business Insider, DW, Vice, Her World, Asia Insurance Review, the Australian Institute of International Affairs and more.