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What is an endowment plan and how to choose one?

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  • Loh Tat Tian
    Loh Tat Tian, Ex-Financial Advisor, Founder at Singapore Insurance Value Finding
    Level 6. Master
    Answered on 22 Jan 2019

    Its a form of guarantee (based on the gauranteed amount), that a certain amount of money will be given to you once it matures.

    There is a component which is tagged into the endowment.

    1) A non-guarateed component which is put into bonds and equities to beat whatever bank rates (fixed deposit) has offered to the mass market.

    2) A insurance portion whereby 105% of premiums paid or 101% of total surrender value (whichever higher) will be given to the beneficiary in the event death has occurred.

    3) Hence to many people, it is an effectively a savings plan for people, or a potential better than fixed deposit savings account.

    To choose 1, it is best to get the highest Internal rate of return (IRR) based on the plan.

    Also, do take note that the IRR consist of guaranteed and non-guaranteed (so choose the plan that has a higher guaranteed and total IRR is the same) for your endowment.

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  • Jonathan Chia Guangrong
    Jonathan Chia Guangrong, Fund Manager at JCG Fund
    Level 6. Master
    Answered on 20 Jan 2019

    Form of 'forced savings' product from insurers that has a mix of life protection and 'investment'. Premiums you pay go in part to a fund comprising mostly of bonds and some equities. May be suitable for those who are not savvy about investing their own funds and do not wish to pick up any knowledge. Not good due to the very low yield. I'd suggest learning how to invest on your own which can give better returns on the same amount of money. Or if you have a low risk appetite, consider parking in fixed deposits or Singapore savings bonds instead. Hope this helps

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  • Alan Kor
    Alan Kor
    Level 4. Prodigy
    Answered on 20 Jan 2019

    Most endowment plans are rubbish because they lock up your money for a long period, in returns for mediocre returns.

    Better to stick to high yield bank acct and ssb.

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  • Nicholes Wong
    Nicholes Wong, Diploma in Business Management at Nanyang Polytechnic
    Level 6. Master
    Answered on 19 Jan 2019

    It is a life insurance contract designed to pay a lump sum after a specific term or on death. Often advertised as a forced savings plan. Make sure you know the guaranteed returns. Look at other alternatives as well such as Singapore Savings Bonds or high interest savings account. Put your money into something that suits you because everyone is different.

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

    Top Contributor (Apr)

    Level 7. Grand Master
    Answered on 19 Jan 2019

    An endowment plan comes in many shapes and sizes. What you do need to know is that it's an asset, and buying one is an investment.

    It's usually an illiquid asset that provides guaranteed and non-guaranteed return subjected to the bonuses paid out by an insurer in relation to how well the participating fund (only for participaying plans) that your money is invested in, performs.

    I would recommend endowment plans to people who die die needs the money invested to be there upon certain life events, like paying for a child's education or for retirement nest egg/income.

    The yield for participating endowment policies can yield anywhere between 2-4.5%. And every endowment plan can be different in their own way.

    To choose one, look out for (some of them are very complex and you may not know how to properly judge if you're not an FA):

    • follows a timeline you want

    • has a high yield upon maturity or at a certain age as written in the benefit illustration

    • the % of the total bonuses paid out upon maturity shouldn't be too high compared to bonuses paid out each year

    • Usually shorter premium terms but with a longer policy terms work better.

    • The expense ratio of the company's par fund

    • The bonus pay out table in relation to $ for every $1000 sum assured as stated in the product summary

    • The reputation of the company for honouring bonuses promised.

    • Flexibility of the plan and added benefits (cash in early, policy loan, assignment option, life replacement options, etc)

    • Could be more but I think I named quite a lot already.

    My advice is to speak to an IFA, at least you have a comparison available for almost all the products available in Singapore.

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