Investments

Endowment Policies

Asked by Anonymous

Updated on 18 Apr 2019

What are some recommended endowment plans with low monthly premiums?

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Yixiong Chang
Yixiong Chang,
Level 5. Genius
Answered on 05 Nov 2018

Endowment plans are largely a savings plan with a small insurance factor to it. If you want it to be "low monthly premium", you just have to elect to save less, and thus a smaller eventually maturity value.

You might be asking where is the highest return? In general the longer the saving period, the higher the net return. Also one with the lowest cost structure will be able to have higher returns (One that doesnt not pay commission to agents or any middlemen). For eg, you can take a look at FWD website, where they offer a 3 year endowment.

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Brandan Chen
Brandan Chen, Financial Planner at Manulife Singapore
Level 5. Genius
Answered on 05 Nov 2018

Firstly, you have to ask yourself the following questions before deciding on whether endowments are suitable for you:

  1. What is your investment horizon?
  2. What is your savings goal?
  3. How long do you intend to contribute?
  4. What is your risk profile?
  5. How liquid do you need your funds to be?

Even for endowment plans, there are several structures or payout methods. Your first focus, if you deem that endowments is suitable for you, is what kind of endowment plans you require? Below are some types of endowments for your consideration:

  1. Plain Vanilla Endowment Plans with fixed maturities
  2. Short Term 5 year Endowments with Guaranteed returns that beat F.D rates
  3. Perpetual endowment Plans
  4. Guranteed payouts from first year
  5. Guaranteed 5% coupons after premium payment terms

Above are some endowment structures you may consider. In short, the returns for endowments, depend on the following factors (just to name a few):

  1. Investment horizon
  2. Underlying returns of participating funds
  3. Flexibility of withdrawals
  4. Amount of Premiums

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Jacob Chong
Jacob Chong, Executive Financial Advisor at PIAS
Level 3. Wonderkid
Updated on 05 Nov 2018

Great that you have start thinking about saving!!!! That's a great first step. Most Insurers accepts from 100/ month savings some with lower than a 100 a month. I can runs some numbers if you want.

Now 2nd thing to consider is what's the purpose of this saving plan that you have?

i.e for early retirement, Wedding, House upgrade in the future, children education etc. the reason to set this purpose or goal is to keep you "in track" (FOCUS) and manage expectation of what you are going to achieve from these endownment plans. More Often then not some will lose track of why they wanted to save in endownment plans in the first place and then after some "consultation" with so call "investment gurus" they decided to surrender the policy at very high cost for better "investment Returns" or simpily lose the focus of their saving objective and decided to spend the money on other things. Which is not worth you money and time vested.

Time Frame also plays part in the selection. most offer save 5 years waits 5 years, some are plain vanallia 25 years savings that beckons the reason why you need to set your reason too. i.e for retirement you can look for longer term endownment if you are younger. for shorter time frame goals such as wedding and children's education then select the right saving period to suit that needs of yours.

Most endownment plans offers Death Benefits and other applicable riders (where some form of underwriting may be required, some are GIOs (Guaranteed Issuance Offer) where there is very little death coverage usually 105% of th total premium paid. So this is also one of the considerations that you ponder on. Usually not always , "higher death sum benefits" endownment plans yield lesser returns than those GIOs plan because of the mortality charges etc.

Look at the cover page of the Product illustration the company will indicated the yield to maturity of the plan at both Projected returns table. Different companies offer different yield for their endownment plans so do compare around.

Lastly there will be nah sayers of endownment plans and asked you to invest to get better returns. However more often than not the nah sayers some time are clueless as to where and how they should invest. Investment is not the cup of tea for everyone, some are just comfortable with 3 plus % returns as compare to those that has higher risk but gives 7-8% returns.

I am not against investment, in fact been in this line for quite some time now and through experience I can tell you I have seen my fair share of "investment Gurus" who got my clients into unknown investment that promises higher returns in short time frame and then lost all their hard earn money.

Great that you are taking that first step into financial planning. There is never a thing call small savings as long as there is a start.

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Usually endowments are purchased with the intention of guaranteeing an event in life happens without fail. These could include a downpayment on a home, University Fees for our children, a Retirement Nest Egg, leaving a legacy for our grandkids.

Understand that endowments are income assets similar to a bond (both coupon and non-coupon) with flexible structures and the option to add riders that make sure you achieve that goal.

But recently, for those just looking for "wealth accumulation" with no clear goal but just want a higher % of return with almost no risk and headaches, the perpetual endowment plan was created.

It's a savings plan that allows for withdrawals almost like an ATM after a specified number of years, the ability to continue earning a return forever withdrawing only when necessary, and achieving 3-4% returns in the long run.

One that I would recommend would be Manulife's Ready Builder in this scenario. Take a look at it, speak to a FA and see if this would fit what you're looking for.

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