Endowment insurance – 5 key documents explained

By Gwendoline Tan

If you’ve only got a minute:

• When you buy an endowment plan, you will be given policy documents that include a copy of Your Guide to Life Insurance, a cover page, policy illustration, product summary, and bundled product disclosure.
• Understanding your policy documents ensures you are empowered to make informed decisions that align with your financial goals and needs.
• The policy illustration is crucial as it offers insights into the estimated worth of your endowment plan in the event of death, early surrender or maturity of your policy.

When purchasing an insurance plan, it is natural to focus on the product’s potential returns or coverage. This is especially so for bundled products like endowment plans, which combine both an insurance component and an investment element to grow your wealth.

Equally crucial, however, are the accompanying policy documents. Standardised across the industry and mandated by the Life Insurance Association of Singapore (LIA), these documents are not just for regulatory compliance, but to help you make a well-informed decision.

The 5 key documents—Your Guide to Life Insurance, a cover page, policy illustration, product summary, and bundled product disclosure—clearly outline potential payouts, associated costs, and policy terms. Together, they play a crucial role in setting clear expectations and protecting your interests as a policyholder.

Read more: Understanding endowment policies

1) Your Guide to Life Insurance

The LIA produces this booklet to provide foundational information on life insurance products and distribution channels available in Singapore.

It also outlines the general sales advisory process of financial representatives in Singapore, as well as your commitment and responsibilities as a customer, ensuring a well-informed purchasing experience.

2) Cover page

The cover page highlights key features, risks, and any compulsory riders of the policy.

It also includes other important information, such as an explanation on a 14-day free look period that starts from the day you receive the policy documents. During this period, you can cancel your plan if you find that the policy is unsuitable, and the insurer will refund the premiums less medical and other costs you have incurred.

3) Policy illustration

This document, previously known as the “benefit illustration”, provides detailed information on your policy’s potential growth over time. From it, you can also gauge the respective payouts upon the death of the insured person, surrender, or maturity of the policy.

Here's an example of a policy illustration for a limited pay participating endowment policy like Manulife GrowSecure, tailored for a 25-year-old non-smoking male. Limited pay endowment policies involve premium payments over a fixed, shorter period, while coverage and benefits continue till maturity.

The sheer volume of numbers involved here is enough to make anyone go cross-eyed, but fret not! Decoding them all is not rocket science.

Find out more about: Manulife GrowSecure

The top section outlines the policy specifics, where it is a limited payment endowment policy with a 16-year term and an annual premium of S$13,610 over 5 years. Premiums can be paid monthly, quarterly, semi-annually, or annually, with the annual option being the most cost efficient.

This can be seen as 12 monthly payments of S$1,168 amounts to S$14,016 for the year, which is S$406 more than the annual premium of S$13,610.

Now let’s look at the tables, terms used, and what they mean for you as a policy holder and life insured.

End of policy year/age and total basic premiums paid to-date

The 1^st column of each policy illustration table, “End of Policy Year/Age”, shows you each year the policy is in force and your corresponding age at that year. In this example, you will be 30 and have paid the last premium for this policy by the end of 5^th year (since it has a payment term of 5 years).

The 2^ndcolumn, "Total Basic Premiums Paid To-Date," reflects the cumulative premiums paid each year. This amount increases by S$13,610 each year until the 5^th year, after which it remains at S$68,050 as no more premiums need to be paid.

Guaranteed and illustrated rates of return

Payouts are categorised into guaranteed and non-guaranteed returns, with non-guaranteed returns being dependent on the performance of the participating fund.

Since the non-guaranteed returns face a certain volatility, the LIA has set guidelines for insurers to provide 2 different scenarios of investment performance for the underlying fund. They are currently 3% and 4.25% and are reviewed by the LIA annually to ensure their ongoing relevance and appropriateness. Before 1 July 2021, these illustrated rates were 3.25% and 4.75%, respectively.

These illustrated rates help you understand potential payouts under different market scenarios. They are not guarantees, nor do they represent the maximum or minimum possible returns of the participating fund. Your actual payout will depend on the participating fund's real-world performance and any applicable costs.

Death benefit

This section details the payout upon the insured person's death before the policy matures. Since an endowment plan is a bundled product, the insurance component of the policy usually ensures that the death benefit is always higher than the total premiums paid, as can be seen comparing the 2^nd and 3^rd columns.

For instance, should you pass away on the 6^th year of the policy, your beneficiary will receive a guaranteed death benefit of S$71,453 plus a non-guaranteed component which will only be known with certainty on the 6^th year of the policy.

As a rough gauge, if investment returns have been consistent at 3%, you can expect a payout of around S$72,614 (sum of guaranteed amount and S$1,161). If investment returns have been consistently at 4.25%, you can expect a higher amount of S$73,035 (sum of guaranteed amount and S$1,582).

Surrender and maturity value

The "surrender value" indicates the amount you'll receive if you terminate the policy early. The "maturity value" represents the payout you'll receive if you hold the policy until the end of its term.

Using the same 6^th year reference as before, surrendering the policy early yields a guaranteed return of only S$16,084. Even with the non-guaranteed element at 4.25%, the total (S$17,165) represents a loss of nearly 75% of the premiums paid.

This is why surrendering your policy is not likely to be a good idea as it usually comes with a heavy penalty.

Using the surrender values, you can roughly estimate when your policy breakeven point will be. This is the time where you can get back the full amount of your premiums paid or more, in the event you do have to surrender your policy early.

Based on the guaranteed benefits, the only time this happens is upon maturity. However, factoring in non-guaranteed component delivering a consistent 3% return, you'd breakeven between the 14^th and 15^th policy years. If the returns have been 4.25%, you will breakeven slightly earlier between the 13^th and 14^th policy year.

Table of deductions

The table of deductions highlights effect of deductions on your policy value, and the cost of surrendering your policy early.

The “value of basic premiums paid to-date” reflects the growth of your premium amount at the illustrated rates of 3% and 4.25%. This assumes that the full amount of the premiums was invested without any deductions for costs of insurance or other expenses.

The “effect of deductions to-date” is the accumulated value of the deductions for cost of insurance, distribution costs, expenses, surrender charge, expected tax payments, and expected transfers to shareholders.

The “total surrender value” represents the difference between the two.

Total distribution cost

This is the sum of each year’s expected distribution-related costs, including the costs of financial advice provided to you. This has already been accounted for when calculating your premium.

Find out more about: DBS Insurance Glossary

4) Product summary

This showcases the key features of your policy.

It should include the nature and objective of the product, details of the product provider (e.g. name and registration number), product benefits, commitment required from the client, any exclusions, pricing, fees and charges borne by clients, terms of withdrawal, surrender or claim, as well as any warnings and disclaimers.

5) Bundled product disclosure

This document helps you to understand what a bundled product is and whether the product you are considering is suitable for you.

In conclusion

Policy documents might seem a little dry or overwhelming at first, but they are one of the most important parts of your insurance plan.

It is worth taking the time to go through each section, especially the policy illustration, to understand exactly what you are signing up for.

If anything feels unclear, don’t hesitate to reach out to a professional advisor for guidance. Understanding your policy documents not only ensures transparency, but also empowers you to make informed decisions that truly align with your financial goals and needs.

Read more: What to look for in a financial advisor

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Source:

Life Insurance Association Singapore, “Your Guide to Life Insurance”, retrieved 15 Apr 2025.

Life Insurance Association Singapore, “Disclosure guidelines for product summary, point of sale documents, and any marketing materials presented to consumers”, retrieved 15 Apr 2025.

Life Insurance Association Singapore, “Illustrated investment rate of return for par policies”, retrieved 15 Apr 2025.

Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.

All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.

Disclaimer for Investment and Life Insurance Products.

Deposit Insurance Scheme
Singapore dollar deposits of non-bank depositors and monies and deposits denominated in Singapore dollars under the Supplementary Retirement Scheme are insured by the Singapore Deposit Insurance Corporation, for up to S$100,000 in aggregate per depositor per Scheme member by law. Monies and deposits denominated in Singapore dollars under the CPF Investment Scheme and CPF Retirement Sum Scheme are aggregated and separately insured up to S$100,000 for each depositor per Scheme member. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.