Endowment Plan is an insurance policy that provides more flexibility than a typical life insurance policy. It has a savings plan feature and gives policyholders the option of choosing the duration of the term. It is the ideal policy for people who want to save up for their child’s education or purchase a bigger house. Endowment plans are more beneficial than savings accounts because the policyholder can earn more with a high interest rate. A lump sum amount will be paid once the policy matures and often it is of higher value than the standard term insurance because of a combination of insurance and investment features. The premium charged will also be higher because of higher returns and the coverage includes death and disability of the policyholder.
Unlike other insurance products, endowment plans come with numerous guarantees. However, not all companies offer endowment plans that come with guarantees. Some attractive guarantees that people in Singapore should look for in an endowment plan include Guaranteed Yield, Guaranteed Capital and Guaranteed Acceptance. Such guarantees can give policyholders the assurance that they will get good value when the policy matures.
The above list of endowment plans is not exhaustive, but are the most popular among people in Singapore.
Let’s understand the endowment insurance policy a little better with an example.
Say you are 50 years old when you buy an endowment insurance policy with an initial investment of S$100,000 for 20 years. Then, the annual premium that you need to pay is S$5,000 and every year you will receive a standard bonus of 4% or S$4,000.
After 20 years, your bonus will stand at S$80,000 (S$4,000 x 20). At the time of maturity, you will receive a lump sum amount consisting of your initial investment of S$100,000 as well as the bonus of S$80,000, making it a total of S$180,000. In this case, the rate of return is 6%, which is higher than an average savings account return rate.
An endowment insurance plan provides cash values or bonuses every year, based on the rate of return from your with-profits funds. The accrued bonus is high enough to cover your life insurance policy premiums, making it a self-sustaining plan. If you pay your monthly premiums on time, then you will get a guaranteed return upon maturity. In the event of your death, the death benefit will be given to your child.
Unit-linked endowment policy is an investment where the premiums are used to buy units of a unit-linked insurance fund. The price of these units is set on the basis of performance of the investments in the fund. You can choose a growth fund or a value fund and the proportion of the premium invested in the fund.
Since an endowment plan offers both protection and investment at low risk, you can earn annual bonuses only if the investments perform well. These bonuses help safeguard your fund returns from market instability. However, if the returns are low then the bonuses will not be high to offset your premiums. In that case, you will have to pay the premium.
If the rate of return from the endowment insurance plan is lower than the final benefit value, then you can opt to trade the endowment plan. The buyer willing to purchase the endowment plan from you will pay more than the insurance company’s surrender value. After handing over the policy to the buyer, you are no longer liable to maintain the policy.
China Life Insurance policy is a 5-year plan, offering one of the best endowment insurance policies. This plan can be substituted with any fixed deposit or Singapore Savings Bonds as it provides a high return with three types of guarantees – Guaranteed capital, guaranteed yield, and guaranteed acceptance.