What's the difference between an endowment plan and an Investment-Linked Policy (ILP) Plan?

Hi anon,

There is a very big difference between the plans. Both aim to accumulate wealth, but ILPs can have protection elements. Here is a list of key points to note (not exhaustive)

• Endowment plans have a guaranteed return. ILPs do not
• Endowment plans will usually have a fixed maturity. ILPs do not. The exception would be perpetual endowments which have no end dates, but even those will have a guaranteed surrender value that increases over time
• Endowment plans will give an additional return based on the performance of the fund (comprised of policy holder monies pooled together, and invested). Each time a bonus is declared from this fund, it is vested and becomes guaranteed. The fund is also managed by the insurer. So your policy guarantee will increase over time. ILPs have none of these, the fund choice is usually on the policy holder, and there is no guaranteed return from a fund, nor any form of vesting
• Endowment policies do require you to commit premium for the whole duration. ILPs can have a premium holiday whereby the premiums can be paused, but the plan continues to run
• ILPs can have riders added that will pay out a lump sum upon CI or death, etc. Endowments can have riders added that will waive the premium upon CI or death, etc, but there will be no payout.

Any consideration for getting such plans should be done only have you have sorted out your basic insurance (medical, CI, death/TPD) and establish an emergency fund.

For endowment plans, your money is invested into the insurance company's participating fund. In this way, you have no authority over what the company invest in. After the participating fund generates a return, part of it is given to you as promised (forms the guaranteed portion) and a portion of it is non-guaranteed (depends on participating fund's performance). Here is some info about it: https://www.blog.pzl.sg/what-is-a-participating...

For an investment-linked policy, the returns are always non-guaranteed. Instead, you are responsible for the funds that your money invest into. As a result, your returns will depend on the chosen funds, investment strategies, and risk management strategies that you adopt.

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