How does insurance endowment plans work? To what extend do the insurance gives you their announced maximised annual interest/ return rate?

Hi Alex,

The SMS you obtained is probably in relation to their Singlife account.

https://singlife.com/manage/

This account lets you earn potentially up to 2.5% on your first $10K. However, if you note the fine print, this is not guaranteed. Naturally the insurer will want to try to deliver what was mentioned, as this will look better for them, but by no means is it a guarantee, so the stated returns are true in the sense that they are the potential returns, not guaranteed ones.

However, if you were to compare this to endowment:

https://singlife.com/grow/endowment/

This 2.25% p.a., while lower than the 2.5% of the Singlife account, is indeed guaranteed. So you will get this return at the end of the 3 years. Having said that, you cannot compare both, as one is a savings account of sorts with no lock in, and the other is a pure endowment plan with a lock in of 3 years. However, with the endowment plan, you don't have to worry about getting the 2.25% returns. You will get it, as long as you hold to maturity.

As an alternative to fixed deposits, SL 2.25% is decent and probably one of the best right now ever since Aviva closed their 2.28% tranche earlier this month. Such plans do come and go, so best not to dump everything including the kitchen sink into one single plan.

Hi Alex,

In regards to how they work, typically endowment plans are participating wealth accumulation policies, meaning the premiums paid are will be used by the insurer to make investments, and the returns from the investments will be declared to you, the client on an annual basis.

The unique point about having an endowment policy is that insurers will smooth out the bonuses, meaning if that year's investment is a good year, the insurer will declare X amount as bonus, and the remainder will be put into their reserves, so that in the event the next year's investment doesn't perform as well, then they can tap on the reserves to ensure you get the same bonus that you got previously.

Also in regards to the returns of 2.5%, it is projected, I don't think any insurer would want to give you a guaranteed rate of returns or have you captial guaranteed, as to do that, usually what happens is that the insurer will have to tap on their reserves in the event the investments do not perform as well that year. You might want to check on the track record of the insurer to see which would be a better fit for you.

Do reach out if you would like to find out more on what can be offered to you. My email is [email protected]​​​