Endowment Policies

Investments

Insurance

Asked by Anonymous

Updated 2w ago

Is endowment plan necessary? Especially one that requires payment for 30 years or would investing be the better option?

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No it's not necessary.. Definitely not when the funds are locked up for so long period a time.. There are safer and more liquid ways to park your funds. Like Singapore savings bonds, or a bond Etf. These will give you about the same sort of returns as an endowment, plus minus a bit. There are also high interest rate accounts like citibank's maxi gain giving you about 2% or more at the end of one year (based on current rates where the base interest is 80% of one month sibor). If you have a larger risk appetite, a basket of s-reits yield a better return than an endowment. Hope this helps.

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Jonathan Chia Guangrong
Jonathan Chia Guangrong

05 Oct 2018

Mm is there any surrender value to the policy at this point in time? Personal take is to look at this first before deciding further.. If there is some surrender value, you can assign it to a third party like REPS holdings for something higher than current surrender value. Do this if you are comfortable with better liquidity with a little less returns via the previously mentioned instruments or if you think you can get better returns out there without your funds being locked up in a retail product. Again this is my personal opinion. Hope this helps
Jin Shun Chia
Jin Shun Chia

2w ago

It seems like you're back tracking if you stop the endowment plan now. Are you 100% sure that your investments will give better returns than the endowment? If yes, then surrendering after 3 years of premiums paid don't seem so bad. If not, maybe you should set aside some extra money for investment and then compare your investments with the projected returns of the endowment plan before doing anything.

Firstly, we need to understand the purpose and objective of an endowment policy.

When money has to absolutely be there no matter what for a specific event in your life (child education, retirement, paying the downpayment on a house or car), get an endowment.

If you can take any sort of risk to seek for better returns than 4%, it would be smarter to invest in the market.

A globally diversified managed portfolio can generate 6-10% on average based on your risk profile which offers liquidity is might be something you should explore if you're not interested in learning how to invest by yourself.

But before you start looking for potential upside, make sure you protect your downside, by having an emergency fund of about 3-6 months of your salary, life insurance that covers about 10-15 years of your salary in the event of death and permanent disability, and about 3-5 years of your salary in the event of Critical Illness.

All the best!

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Choon Yuan Chan
Choon Yuan Chan,
Level 4. Prodigy
Answered on 06 Oct 2018

No, especially For endowments that requires you to be locked in for 30 years

Using the oney to buy term/Index Funds/ SSB or even CPF SA would outperform such 30 year endowments. I would say no to any financial advisor who advses such long term endowments unless it can gurantee 4.75% returns

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Ck Chai
Ck Chai,
Level 4. Prodigy
Updated 3w ago

If there’s a chance, I would tell the teens me not to buy endowment coz after 23 years near maturity, I just managed to break even. It is not even 1/2 of projected value as last checked, estimated matured value is now $13K+ vs originally projected $20k+. it was my very first policy bought when I'm totally ignorant of the pros and cons.

However, endowment may works for those without saving discipline. Best to buy without the riders. Having said that, there are other investment instruments that provide greater flexibility.

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Ck Chai
Ck Chai

15 Nov 2018

e.g. AIA 25Year BMAE, Total Lifetime premium to pay $11.8K and last checked maturity value $14K vs originally projected $20K+ but then interest rates has dropped tremendously over the years since 1 first bought 20 years ago :( Also initial years bought with rider and only cancelled much later...
Loh Tat Tian
Loh Tat Tian

19 Nov 2018

Oh dear. The rider has taken a huge bite into your returns. Care to share what rider is it? Normally payor benefit is only about 1% of the premiums (and that should not eat up the projected returns so much).
Jim Ng
Jim Ng,
Level 5. Genius
Answered on 05 Nov 2018

Firstly, you need to determine what kind of risk profile do you have.

Are you a conservative investor, moderate investor , or aggressive investor?

Determine how much risk you are able to stomach before determining the investment vehicle, what is the time horizon you are looking at to set aside this amount of money, and how much losses you are able to take.

Next, realise that endowment policies are partially guaranteed and partially non-guaranteed. Where as for investment options** such as unit trusts, exchange traded funds, mutual funds, they are 100% non-guaranteed**.

Then, compare between instruments that provide guaranteed returns. They are namely Fixed Deposits and Singapore Savings Bonds. In comparison to the returns that Singapore Savings Bonds can return over a 30 years period, endowment policies can only potentially provide higher returns than Singapore Savings Bonds.

You can read more about the calculations that I've done here:

https://bit.ly/2F0zkgc

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Endowment plans are definitely not necessities but they could be a good addition to your portfolio.

Many investors diversify their investments by investing in instruments of different risk levels. Endowment plans could be an option for these investors as a low-risk instrument which requires minimal monitoring while providing them with a potential of 2-4% (approx) yield per annum. Furthermore, there are endowment plans which provide minimal guaranteed maturity values with at least 1% (approx) yield per annum. Thus, if the participating fund of the endowment plan performs terribly consecutively for the term of the policy, the investor could still achieve a yield similar to a fixed deposit. However, this scenario is unlikely as endowment plans typically run for long periods which makes it rare for the policy to be issued zero bonus across the years. Furthermore, once the bonuses are declared, they become part of the policy. Endowment plans thus helps these investors to free up their time and allow them to focus their attention towards investments with higher risks (which translates to higher potential returns).

Endowment plans are also suitable for parents who are looking to put aside money for their children's education. Parents want to make sure that regardless of what happens to them, be it death or disability, their children get a chance to pursue the education they deserve. With an endowment plan, should death or total disability happen to the policy owner, the endowment plan would pay out a lump sum of money which can then be used for the children's education. Endowment plans also provide the discipline (which some parents may lack) by locking away the funds until the maturity date. This ensures that the children's education funds remain untouched until it is needed.

In conclusion, endowment plans are definitely not necessities but it can serve as a good instrument to certain groups of people. Thus, be clear of the reason you are purchasing an endowment plan before committing to it.

Should you have any queries, feel free to contact me at https://m.facebook.com/vinson14 or drop me a text at 94318747.

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Loh Tat Tian
Loh Tat Tian

10 Oct 2018

Question: Since you are on the topic of death / disability, wouldn't the money paid to top up, be more worth than an endowment, and the premium difference be put in CPF SA (if you manage to hit BRS and not selling flat, or FRS if you are selling your flat), or even SSB be more appealing? To go on further, a dividend yielding stock can potential form the safety net with the dividends being structured for 20 years (at 5%) to fully pay out for the education, without touching on the principal sum. Just a thought.
Nicholas Chan
Nicholas Chan,
Level 5. Genius
Answered on 06 Oct 2018

Endowments are not a good investment vehicle. Other avenues generate better long term returns. But you can consider it if u want to make sure u lock away your money for the future & not touch it.

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Good Day Every Day
Good Day Every Day,
Level 6. Master
Answered on 26 Oct 2018

No, endowment plan is not necessary and 30 years is too long a period. It is a want, not a need. Insurance and savings are both necesary. It is best to do the two separately. It is never a good idea to combine the two. Invest in Singapore Savings Bonds and fixed deposit will be better.

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Jefremy Juari
Jefremy Juari,
Level 1. Freshie
Answered on 09 Oct 2018

Having been an insurance agent for a decade, i usually have a mix of both for my clients, but recently the endowment yields are in the gutter. Look for 3 generation plans, they are a hybrid of endowment and whole life and mix with investments to get yield of 6%. Warning! Better looking at alternative investments altogether as the stock crash is around the corner.

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Luke Ho
Luke Ho, Money Maverick at Money Maverick
Level 6. Master
Answered on 06 Oct 2018

I haven't seen a 30 year pay endowment plan for the longest time. Personally, it would seem like a hassle.

There are no necessary plans in the world, whether endowment, investing or even insurance. Every plan only becomes necessary when you have a necessity, an objective, that needs addressing.

If it's about children's education for example, I generally find a perpetual endowment plan quite assuring (Pay limited years, it rolls on its own after).

You keep your focus on the child, the illiquidity keeps you disciplined and the projections only get better across time, easily up to 4%. Every year of declared bonus makes it guaranteed, so you have a lot more assurance that when you take out the money you don't have to wait a few years for the market to bounce back during a downturn.

Investments are better if you have objectives that are more flexible, as well as the ability to take more risk for a higher return. Ultimately, it stiil really depends on what you're saving the money for - and you can decide whats most suitable for you.

If you'd like a consultation, you can always reach me here.

https://www.facebook.com/luke.ho.54

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Alvin Teo
Alvin Teo, Financial Planner at AXA Insurance Pte Ltd
Level 3. Wonderkid
Answered on 05 Oct 2018

Apart from the other answers given here, fundamentally premiums collected from endowment plans are also invested. Typically 60+% in bonds the rest in Equities and sometimes other asset classes.

our Parents era are very into endowment as savings not only because they typical are not investment savvy but also, endownments are able to provide returns of 8% p.a. Easily. However, when interest rates drop to zero, the coupon (dividend) or bonds are reduced also. And now when interest rates are creeping up, bond prices go down significantly. As such it is very dififcul to maintain a profitable portfolio in this environment.

Intersting topic as one of my counterpoints to most endowment products. Shall write up more about this on theSingapore savvy advisor.wordpress.com ask your agent to go read.

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Gabriel Lee
Gabriel Lee,
Level 6. Master
Answered on 05 Oct 2018

An endowment plan is not necessary and yes, there are other investments which gives better returns

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Mabel Tan
Mabel Tan, Financial Consultant at AIA
Level 3. Wonderkid
Answered on 04 Oct 2018

Hello!

First off, just to clarify the difference between endowment and investment plans. Generally for endowment plans, are safer options for people who are more risk adverse and looking for stable returns with a lower risk. As for investment options, generally the returns would definitely be higher but there will definitely be higher risk, depending on your own risk appetite.

End of th day, it really depends on how much you plan to put in and how much returns do you want and when do you need it?

If you‘d like a second opinion on this, feel free to pm me on telegram @mabeltanyl or Facebook messenger me at Facebook.com/mabeltanyuling

Cheers!

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