Life insurance and endowment insurance are two products that may seem similar at first glance, but are actually quite different. So how do you compare the two types of products and how do you know which one to get? We break down their differences below.
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How Are Life and Endowment Insurance Policies Similar?
Life and endowment insurance policies are most similar in their structure. You can have either policy as either a term policy or a whole life policy. A term life policy is a policy that you keep over a set number of years. When the plan matures, you will either get a payout or your policy will end. A whole life (or whole of life) policy means the policy will be in place until you pass away. When it comes to whole life endowment and life insurance, your beneficiary will get the lump sum payout.
Furthermore, both policies can be participating, meaning that both endowment and life insurance plans will accumulate cash value and provide a non-guaranteed bonus that comes from your premiums being invested in the insurer's fund. At the end of the policy term, the payout will be the sum assured and any accumulated bonuses or cash dividends. However, this means that both endowment and life insurance policies will also be subject to early surrender fees and will require you to hold on to the policy until it matures to avoid losing money.
The premium structure is also similar. For both whole life insurance and whole of life endowment policies, you will pay premiums monthly or annually up until the policy matures. For term life and term endowment policies, you will pay premiums for a certain number of years or until a certain age. Both endowment plans may also offer the opportunity to pay a single premium upfront. The main difference between endowment and life insurance is that some endowment policies are limited-pay policies, which means that you will pay premiums for a shorter time period than your policy term (i.e. you pay policies for 3 years but your policy matures in 10).
Lastly, both endowment and life insurance will cover you for death, terminal illness and sometimes total and permanent disability (TPD). You can also choose to get a critical illness add-on to both policies if you want additional protection. However, you should keep in mind that this coverage is the core of life insurance policies and only a supplementary benefit of endowment policies.
How Are They Different?
The major difference between life and endowment is that they have two different end goals. Life insurance covers you mainly for death, terminal illness or disability while endowment is more of a savings plan with a small life insurance component attached.
The time period for these policies are different as well. While both life and endowment policies can be either term or whole life plans, endowment plans typically have a shorter term period. Endowment plans have maturity periods between 3 to 25 years, while term life insurance plans mature either after 20-25 years or up until you turn a certain age (ex: up to age 55, 60, 65). Term life insurance policies may also give you the option to convert to a whole life policy, something that a few endowment plans may let you do as well.
The payout is also different. Endowment policies are created to give you, the policyholder, a payout when the policy matures. They can also provide annual cash benefits or act as supplementary retirement income. On the other hand, life insurance policies will payout to your beneficiaries. Even if you have a term life policy, you won't get a payout if you survive after the policy matures.
Furthermore, as you pay into an endowment policy, your premium will be split between contributing to the savings portion and to the life insurance portion. Because of this, you may encounter endowment policies whose guaranteed payouts are less than the total premiums you invested into the plan. If the fund performed poorly as well, you may even end up losing money. On the other hand, life insurance policies guarantee your sum assured so your beneficiaries are guaranteed to get at least that amount when you die.
Which Plan Will Work Best for Me?
Figuring out which plan works best for you depends on your intent. Are you looking for a low-risk savings plan for yourself? Then you should talk to a financial advisor about endowment policies. Are you looking for a way to financially protect your dependents if you die? Then you should talk to your financial advisor about life insurance policies.
Endowment policies are typically used by people who are very risk-averse and want a disciplined way to save for a particular goal, such as a down payment, tuition or retirement. Life insurance policies are a common method of providing financial protection against disablement or death so that you and your family won't be left with large debts and will have enough money to support themselves if you were the main breadwinner.
If you'd like to compare life and endowment insurance policies in greater detail or you simply want to see what's available on the market, please read our guides to the endowment insurance and the best life insurance in Singapore.
|Benefits||Endowment Policies||Life Insurance Policies|
|Premium Term||Single premium, limited-pay or regular||Single premium or regular|
|Policy Term||Term (3-25 years); Whole life||Term (20-25 years, up to age); Whole life|
|Type of Policy||Participating, Non-participating||Participating, Non-participating|
|Coverage||Death, TPD, TI||Death, TPD, TI|
|Annual Cash Payout||Sometimes||No|
|Guaranteed Capital Return||Sometimes||Yes|
|Can Purchase Online||Few||Only Direct Purchase Insurance and some Term Life|