Know what an endowment plan is, its types & features

Too busy catching up on life to keep track of your savings needs and goals? There are ways to automate that process. One tool that many people in Singapore turn to involves endowment insurance plans (or endowment plans).

What is an endowment plan? It is the hybrid of a life insurance policy and a savings plan. Such hybrid plans are commonly used to save money for specific savings goals, which could range from your children’s education, to your own retirement. As an added benefit, these plans also provide basic life insurance protection for as long as the policy is in force.

There are many types of endowment plans available in Singapore. The most popular type are short term endowment plans, with policy terms ranging from 1 year to 6 years. These are also typically single premium endowment plans, where you pay a one-time premium at the start of the policy. Understanding different types of endowment plans, their working, features, and benefits can help you determine which endowment plan is the best for you.

Features of an endowment plan

An endowment plan can be defined by its policy term, which is how long it is active for.

• Short-term endowment plans are active for between 2 years and 6 years, while mid-term to long-term endowment plans are active for 10 to 25 years.
• Typically, the longer that an endowment plan is active for, the higher the interest rate, and the higher the returns earned.

Endowment plans can also be participating or non-participating plans.

• A non-participating plan will pay you a guaranteed sum at the end of the policy term.
• A participating plan invests your premiums into a participating fund and pays out both a guaranteed sum and a non-guaranteed sum, with the latter determined by the performance of the fund.

There are also a number of payment options available for endowment plans.

• With regular pay endowment plans, you pay premiums throughout the entire time that the policy is active.
• With Limited pay endowment plans, you pay premiums for the initial part of the policy term.
• With Single premium endowment plans – as its name suggests - you only make a one-time premium payment at the beginning of the policy term.

What are the different types of endowment policies available?

Endowment plans are often defined by the needs that they fulfil.

1.   Traditional endowment plans

Traditional endowment plans provide a lump sum pay-out upon maturity, at the end of their policy terms. These make them suitable for you when you have specific savings needs with a predictable timeline. With these plans, you would be able to choose between a participating or non-participating plan, your preferred payment terms, and decide the length of your policy terms based on the type of returns you hope to receive and when you might need the pay-out.

2.   Retirement savings plans

Retirement savings plans are targeted to provide retirement income for you after you have stopped working. These plans (also known as annuity plans) provide regular pay-outs monthly or annually. You can choose the pay-out amount you would like to receive upon retirement, your premium payment terms, and when you plan to retire. Some provide flexibility to change your pay-out date and amount, even after the policy has started.

3.   Education savings plans

Unlike traditional endowment plans, education savings plans provide multiple partial pay-outs at specified times during its policy term. This allows you to pay for your children’s education needs at different stages of their lives, while keeping the policy in force.

4.   Legacy savings plans

Legacy savings plans are designed to help you leave behind an inheritance for your loved ones. These are typically limited pay plans that offer whole life insurance protection to you, and pays out the full sum assured upon your passing.

Which endowment plan is right for you?

In Singapore, short-term single premium endowment plans, such as the 1-year endowment plan SavvyEndowment and Manulife Goal are very popular.

Why? Many people prefer not to have their capital locked into an instrument for an extended period of time, or commit to a long-term payment plan in case they lose their jobs, or take the plunge to start their own business. For them, an endowment plan with a 1-year maturity and a return higher than a current or savings account is good enough.

If you are looking for higher interest returns, there are other medium-term and longer-term endowment plan options available that can provide better returns and more flexibility. For instance, SavvySpring (II) is a medium-term endowment plan with a 12-year policy term. It is capital guaranteed¹ which means you will receive 100% of your capital back upon policy maturity. It also does not have the lock in period of up to 20 years that is common in long-term endowment plans.

SavvySpring (II) also has a short premium commitment period as the Yearly Guaranteed Cash Benefits² will be used to offset future premiums from end of 3rd or 6th policy year. This means that a 30-year-old who buys this endowment plan only pays premiums until they’re 33 or 36, and will receive the payout when they turn 42.

The right endowment plan for you should be based on a holistic financial plan that enables you to achieve financial wellness through a realistic budget, adequate insurance, investing to make your money work harder, as well as home, retirement and estate planning.

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DBS Insurance Important Notes

Disclaimers and Important Notice
This article is for information only and should not be relied upon as financial advice. Any views, opinions or recommendation expressed in this article does not take into account the specific investment objectives, financial situation or particular needs of any particular person. 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.

¹ Not applicable for policies which have been altered. For paid out and off-set premiums options, capital refers to the total premiums paid by policy owner less off the total Yearly Guaranteed Cash Benefits.

² Your Yearly Guaranteed Cash Benefit will be used to off-set the annual premium of the basic plan once the Yearly Guaranteed Cash Benefits are payable. Should you prefer to utilize your Yearly Guaranteed Cash Benefits in other ways, you may instruct us accordingly via a written notification after the policy has been issued. You may also choose to receive the Yearly Guaranteed Cash Benefits or accumulate them with Manulife at a non-guaranteed interest rate of 3.00% per annum (at the illustrated investment rate of return of 4.25% per annum) or 1.50% per annum (at the illustrated investment rate of return of 3.00% per annum).