I have an endowment plan but I realised the money guaranteed is less than what I give? Why is this so? And is there a high chance to just receive the guaranteed sum instead of the projected return?

Hi.

As per Pang Zhe Liang has written, there are two kinds of bonus.

(1) Reversionary bonus which is declared yearly under the non-gauranteed which becomes gauranteed after each year and

(2) Terminal Bonus which is declared only at the end of the year. This can be seen at the huge jump in non-gauranteed at the end of the policy term.

If you wish to know how its derived, you can schedule a meeting (zoom or face to face) with us at PolicyWoke at no cost. We provide education on this to make it clear.

Participating Policy

Generally, most endowment policies are participating policies. Accordingly, your premium is invested into the insurer's participating fund. Thereafter, it will be responsible to give you the guaranteed return and non-guaranteed returns as stated in the policy illustration.

More Details: What is a Participating Fund Singapore

Guaranteed Component

Be that as it may, the guaranteed component is pretty straightforward - you will certainly receive this amount upon the policy's maturity. This is even if the insurer does not declare any bonuses throughout the entire policy period.

In this situation, there are some plans where the guaranteed component is lesser than the total capital outlay upon maturity. As a result, the plan relies on the non-guaranteed component in order to give you a profit. Otherwise, you make a loss.

Despite that, there are also plans where the guaranteed component is higher than the total capital outlay upon maturity. Correspondingly, these are usually the preferred plans as they give us a greater peace of mind.

Non-Guaranteed Component

On the other hand, the non-guaranteed component depends on the performance of the insurer's participating fund. If you want more details about how it works, then I have written a couple of posts about it:

• Reversionary Bonus and Terminal Bonus Singapore

• Smoothing of Bonuses Singapore

These posts will give you better insights into how the bonuses work, and what you may expect to receive in the long run.

Finally, the participating fund is subjected to various investment risks and fund's experience (more details in the post on What is a Participating Fund). This will determine whether the insurer is capable of declaring a bonus each year. Without a doubt, this will have a direct impact on your final maturity value.

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