Asked on 25 Jun 2020
I understand they serve to hedge inflation, force discipline in savings. But if i am disciplined in savings can i do without it ? When will I use savings/endowment plans?
It depends on how you define what essential is. If you mean hedging against inflation, you might want to consider making your money work for you apart from endowment and saving plans. And ultimately, you need to evaluate your life stage and see whether these plans meet your needs.
Endowment and savings allow you to get back some interest while (usually) keeping your capital guaranteed (do check the policy T&C for that though). Its an alternative for people who may not want to invest due to the volatility associated with investments.
It's also a great tool for your guaranteed long term needs since it probably has a guaranteed capital portion to it. There are plenty of endowment and savings, ranging from long term to short term, as well as endowments that allow you to allocate the policy's ownership to your children in the future. Do explore your options. All the best!
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Would assume you would rather invest than to put too much into savings.
For me, my use case for endowment plan is for when the high yield accounts are coming down just like now!
Most of my emergency money will be parked in flexible endowment plan like singlife, elastiq or dash easy earn to hedge against inflation.
I have maxed out singlife and currently looking into elastiq next month.
On why elastiq(1.8%) rather than easyearn(2%):
It depends on what you conisder essential. The benefit of endowment plans is as what you just said, they hedge against inflation. Due to the nature of them being a participating policy, where the insurer will invest on your behalf and give you the returns of investments in the form of annual bonuses.
Compared to saving in the bank, where most of the returns of investments are actually given back to themselves for operational cost and other things. I think if you have the discipline to save, saving in both instruments are beneficial for you.
The good thing about saving in the bank is that it gives you liquidity; you have the option to draw the money out as and when you need. This is definitely something no endowment plan is able to provide.
I have spoken about the better returns from endowment plans, and just to highlight that they are also a lower-risk form of investment as compared to ILPs and investment products. So if you are risk-averse as a person, endowment plans might be a more comfortable instrument for you to invest your money.
Endowment serves to guarantee the amount of money you will need in time to come, while hedging against risks such as health from reaching the target.
There are various instruments that serves differing needs and it is important to choose the right one.
You're right. You don't need to use an endowment plan to enforce disciplined saving if you're already disciplined enough to save on a regular basis.
But do you know that endowment plans are also known as insurance saving plans? With the insurance element, the endowment plan can provide the assurance that if a catastrophic event (e.g. critical illness) happens, your saving will not be interrupted because the insurance company will continue to pay the premium for you. This is not possible if you're saving on your own. So, if having this added level of assurance is important to you, then endowment plans will have a place in your financial plan.
07 Jul 2020
You surely can do without them. Even when they lead to discipline, they only raise the costs. But to reduce them is essential.
You can invest all by Yourself, with a cheap online broker and passive indexing ETFs.
How I do it, You could read here:
30 Jun 2020
I don’t see how it’s a forced discipline in savings. You already have a locked savings plan which is your cpf, why get more locked plans..even those that provide cash back, it is still your own money.
Personally I don’t use saving plans and my etf are still more stable. I can withdraw from it anytime i want and over a long period of time i get to keep all gains
In short no, savings or endowment plans are not essential. Instead, what's essential is your ability to use the right financial instruments to grow your wealth and meet your goals.
Generally for an endowment policy, your premium is invested into the insurer's participating fund. Accordingly, you will share the profits while being protected from the downside of investing your money directly into the market.
An endowment policy may be used for various puposes. For instance, a step-up annuity gives you higher guaranteed coupon over time. In this situation, the guaranteed step-up feature hedges against inflation. Additionally, you will receive non-guaranteed bonuses as well.
In another example, an endowment policy is commonly used for education planning. This is usually in direct contrast to investing for a number of reasons, e.g. non-guaranteed returns. Moreover, it is more straightforward to submit a nomination than to draft a Will for investment.
Overall, there are many reasons for using an endowment policies and with limited time, I can only give a brief introduction. In any case, you need to know your needs in order to assess whether an endowment policy is suitable.
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25 Jun 2020