Do Endowment Plans Still Suit Your Saving Needs? Here’s What We Think.
Saving for retirement comes with its fair share of challenges and headaches, given the number of ideas and plans out there, all of which claim to guarantee high, secure returns. Amidst the confusion and uncertainties about the future, endowment plans are slowly emerging as reliable investment vehicles were given their predictable returns.
So what are endowment plans? What makes them ideal for people looking for solid returns over short or long periods?
What is an Endowment Plan?
Simply put, an endowment plan, or endowment policy, is a type of savings plan offered by insurance companies that allow people to accumulate wealth for a given period. After maturity or end of a policy term, insurance companies pay back the agreed amount which is usually higher than the principal amount, most of the time.
Insurance companies use policyholder’s regular contributions or lump sum payments, to invest and generate returns. At Maturity, a policyholder is normally paid the principal amount as well as bonuses made from investments over the agreed period.
Endowments are not entirely for retirement saving purposes, but they can be used to save for things like children education fees or for future property acquisition.
Endowments plans have grown in popularity in Singapore because of their potentially high returns depending on the amount invested and the insurance company.
Why Purchase an Endowment Plan?
As long as a policyholder pays premiums, the beneficiary is guaranteed to receive the endowment once the term ends. Unlike other savings plans, most endowment plans are risk-free as they are not affected by the ups and downs of interest rates.
An endowment can act as a low-risk way to save. Most plans allow policyholders to choose how much they wish to contribute each month and how long they want the term of payment to last.
Unlike many life insurance policies, you don’t need to submit a medical exam to qualify for an endowment life insurance policy.
Some endowment plans come with an insurance component that provides a payout in the event of death or permanent disability to a policyholder.
Guaranteed vs. Non-Guaranteed Returns
Unknown to many, the principal amount or the actual amount contributed over the years is not guaranteed in some endowment plans. What this means is that there are insurance companies that may fail to return the principal amount in full, let alone the interest earned. In this case, the endowment plan is pegged as a Non-Guaranteed return policy.
Guaranteed Return endowment Policy plans, on the other hand, require an insurance company to return a certain amount, regardless of how badly an investment portfolio performs.
Long-Term Endowment Plans
These are endowment plans that last more than 5 years. While their returns can be good given the period of investment, it comes with a higher risk. Market conditions are constantly changing, which means that the policy holder’s contribution will always be at risk over an extended period of time.
The longer it takes an insurance company to invest policyholder contribution the more they have to worry about losing their principal amount upon maturity. The fact that money is locked for a long period may also not be desirable for most people.
|Endowment||AIA Singapore||AXA Insurance Pte Ltd||FWD Endowment Plan||Great Eastern|
|Annual Premium||S$ 5,000||S$5, 000|
|Lump sum Premium||N/A||N/A||S$1000-S$18, 000||S$10, 000>|
|Premium Term||5 Years||5 years||1 Year||1 year|
|Interest||N/A||N/A||2. 02%||2. 05%|
|Total Premium||S$25, 000||S$25,468||N/A||N/A|
|Coverage Term||10 Years||10 Years||3 Years||3 Years|
|Guaranteed Amount||S$21,999||$24, 280|
Short-Term Endowment Plans
Short term endowment plans are insurance policies that last between one and five years. They are perfectly suited for people with low-risk appetite and those that are looking to beat yearly inflation at an average of 1.9%.
These policies are also suited for people with an extra sum of money which they don’t have long-term plans for. They are definitely not for active investors but for people who don’t want their money to just sit in the bank.
Why Are Short Term Endowment Plans So Popular?
Short term endowment plans are relatively low-risk, given that they are offered by reputable’ insurance companies. These companies have proven strategies that they use to ensure policyholders monthly contribution is able to generate significant returns given the small period of investment.
The fact that they are offered for a short period of time, minimizes the chances of a policyholder losing their principal amount, compared to long-term endowment plans.
These plans are also perfect for beating inflation given the short period of investment.
Short-Term Endowment Policy Providers Singapore
Great Eastern Life Insurance
Great Eastern Life insurance is one of the most reputable providers of short-term endowment plans in Singapore. The insurance company offers a three-year single premium endowment plan with a guaranteed payout of 2.05%.
This policy requires policyholders to invest a lump sum into the policy which is locked for 3 years. One can choose to withdraw, earned 2. 05% interest at the end of every year or reinvest it into the policy. The minimum amount to invest in the policy is S$10,000.
The single premium paid is guaranteed at maturity and is one of the highest guaranteed returns in the market. A unit of OCBC Bank, the firm also provides coverage against death, total and permanent disability of up to 105% on a single premium.
FWD Group Endowment Plan
FWD Group Short-term endowment plan offers a unique way to save and invest online, as little as S$1000. The plan has a high guaranteed return of 2.02% per annum. Regardless of market condition, the insurance company promises to pay back 100% of invested capital when the plan matures.
The policy is also protected under the Singapore Deposit Insurance Corporation Policy Owners Protection scheme.
The maximum amount that a person can save in the plan is S$18,000 and the minimum is S$1,000
China Life save Reward Endowment Plan
China Life Reward endowment plan has a yield of 2. 08%. However, the policy runs for 5 years compared to 3 years, for the previous two. The policy offers 100% capital guaranteed upon maturity with a 3-year premium payment requirement. No Medical checkup is required and offers financial protection Against Death.
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