Endowment Policies

What is an Endowment Policy?

Endowment Plans are also commonly known as an forced savings plan that aims to achieve financial goals (E.g., Child’s education, retirement or investment) by building a sum of savings amount over a period of time. Endowment policies are long term plans & usually have a fixed term towards maturity with a regular premium paying term. Endowment policies have cash values which will build up after a minimum period, and this differs from product to product.

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Types of Endowment

Participating endowment plans are policies that participates in the shares of the insurer’s participating funds. The proportion of your premium is divided into the fund investment and the insurance coverage of the life insured. Maturity benefit is made up of guaranteed & non-guaranteed portion, and bonuses / dividend depends on the investment of the fund participation that is involved.

Non-participating endowment policies have guaranteed maturity & cash values as they are not involved in participating fund investment thus not entitled to any bonuses.

Anticipated endowment policies comes with a unique feature as the sum assured are usually paid in specified intervals within the policy period. The balance will be paid out upon maturity together with any available bonus accruals.

Limited Pay (LP) policies are plans that have a fixed premium paying tenure that is shorter that the policy term. Once the specified premium payment has passed, the remaining period towards maturity does not require any payment and the policy holder just needs to “wait” for the policy to mature.

Single Premium (SP) policies would only require a one-time lumpsum premium payment. Most single premium policies usually have a shorter policy term towards maturity compared to regular-premium endowments.

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Pros

• Offers diversity of both savings & coverage (e.g. Death, TPD, CI)
• Have loan feature, maturity benefits & surrender values
• Flexibility to opt for different premium term and premium amount
• Disciplined savings vehicle to help attain your financial goals

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Disadvantages

• Limited period of protection & coverage
• Higher premium, long period of funds lock-in, non-renewable or convertible like term plans
• Pre-mature surrender / termination may cause you to lose part or all your monies committed into the policy
• High interest for policy loan (est. 5% p.a.)

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In conclusion, buying are policies that requires long-term commitment. Pre-mature termination may cause result in monetary losses. You should always ask yourself on the affordability throughout the premium term, and the ability to wait till policy maturity for the liquidity of your funds.