Asked by Anonymous

What do the community think about having a Long term endowment plan e.g 20 years for someone who just started working? What are the pros and cons? Thanks in advance!

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  • Soon Xiaohui
    Soon Xiaohui
    Level 5. Genius
    Answered on 28 Aug 2018

    Hello There,

    To be honest, it is depending on what is the purpose/objective for the plan? There is many alternative options. And premium term affects the overall ROI of the plans. Let me put this in a simple way: Paying a 20 years premium does not guarantee you will have a good return as every plan is designed & calculated differently. Sometime a short term premium (5 years premium) with a long duration (maybe 20 to 25 years of holding period) can give a much higher ROI however this is solely depending on your budget.

    But for someone who just started working, I would recommend you to look into your cash flow (expense), learn on how to manage it, create an emergency funds & saving up in alternate bank accounts (especially if you do not have a saving habit, time to build the habit). You may put partial of your saving into SSB while you learn more about endowment, investment.

    Please do not hurry and commit into a plan without understand its nature. If you really wish to speak privately, do feel free to pm via facebook~

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  • Alan Kor
    Alan Kor
    Level 4. Prodigy
    Answered on 24 Aug 2018

    you will be locking up your cashflow for very long time for mediocre returns. are you comfortable with it?

    compare the returns with ssb avg 2%+ for 10 yrs, with 1 month flexibility

    dont rush to lock in your money without comparison

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  • Jin Shun Chia
    Jin Shun Chia, Senior Financial Consultant at Prudential
    Level 4. Prodigy
    Answered on 20 Aug 2018

    Long term endowment (or commonly called savings) plan works to make you disciplined in savings. For a fixed plan, i.e. can't withdraw during the policy term, it ensures you have a sum of money to use for at the end of the policy term. For a flexible plan, i.e. you have option to withdraw money during the policy term, it allows you to have some spare cash at any point in time.

    Just to share I started my endowment plan when I was schooling. When I graduated in end 2008, it was bad job market. It took me 3 months to find a job (when others before and after me already have offer when they graduate). During that time I exhausted my bank savings but luckily I had endowment plan to withdraw cash to tide over things for a couple of months before the paycheck comes in.

    Sometimes you never know when you need that extra cash - having a long term savings plan ensure that you'll have something somewhere along the line! The pros is definitely there. But be ware not to over-commit and bite off more than you can chew. You won't want to get an endowment plan that over stretch your financial capability!

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  • Hariz Arthur Maloy
    Hariz Arthur Maloy, Independent Financial Advisor at Promiseland Independent
    Top Contributor

    Top Contributor (Mar)

    Level 7. Grand Master
    Answered on 19 Aug 2018

    Firstly, you'll need to understand why endowments exist.

    When money has to absolutely be there no matter what (event if the payor passes away or falls ill), get an endowment.

    This is useful for the following objectives:

    1) Education planning. Kid still needs to go to school.

    2) Retirement planning. You must retire and might not want to take much risk on your portfolio.

    3) A long term purchase like a house, car, boat, etc.

    4) Due to smoothing of bonuses and that bonuses once declared yearly is guaranteed, you can safely assume you can get the projected returns.

    Now on to the cons.

    1) Almost no flexibility. (Get a flexible plan, and you'll get lesser returns).

    2) Surrender value before maturity is usually less than premiums paid.

    3) 20 years is very long. You can change your mind on your objective, a better deal may come along the way, you may gain investment knowledge and can now get a higher return sacrificing on the guranteed-ness of the policy.

    So unless you're planning for something very specific, you do not need an endowment. Rather focus on protecting your downside and achieving higher upside with investments when you're young and have a longer investment horizon.

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