Saving Plans And Endowment Policies: How does it work?

Is a Saving plan or Endowment policy right for my financial objectives?

  • Is an endowment savings plan the right choice for your wealth accumulation goals?
  • What distinctive features does a regular savings plan offer?

Endowment and Saving Policies

An endowment policy is a kind of life insurance that pays out a lump sum after a specific tenure (maturity) or upon death. Most of the endowment policies in the market are Guaranteed Issuance Option (GIO) – meaning it comes with a very minimal sum assured. Policyholders do not need to declare their health condition for medical underwriting upon purchase.

Premium Term: The number of years you have to pay the premium for.

Policy Term: The number of years until the maturity of the policy.

RelatedEndowment and Saving Policy

Types of Saving plans and Endowment policies

Generally, there are two types of endowment and saving policies:

  • Limited Premium – Premiums are payable for limited years during the start of the endowment savings plan
  • Regular Premium – Premiums are payable until the maturity of the endowment savings plan

Regular Premium Policy

A normal traditional endowment plan is straightforward. The premium term usually matches the policy term. If you have chosen 15 years premium and policy term, you need to save for the whole 15 years. The policy will then mature at the end of the 15th year of the policy.

Limited Premium Policy

A limited pay endowment only needs you to make payment for a certain number of years, after which the funds will accumulate and compound on the saved amount until maturity. Options are available to choose your premium term between 5 to 20 years. The maturity of the Endowment and Saving Policy will be between 10 to 25 years.

If you have chosen the premium term of 10 years and a policy term of 25 years, you will need to make payment for 10 years. The plan will then continue to compound financial returns over the next 15 years and mature at the end of the 25th year of the policy.

Read AboutMissing out on compounding returns?

Additional Feature: Cash-back/ Cash coupon options

An endowment with cash-back option allows you to withdraw part of your funds after a specific number of years. Withdrawal for cash-back is usually allowed at least after 25 months into the policy. Policyholders are free to withdraw the cash-back, which forms a part of their maturity cash value if not withdrawn.

Insurer usually offers additional interest rates on the accumulated cash-back funds to incentive policyholder to not cash out on the cash-back.

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Key Features of an Endowment Savings Policy

Most endowment savings plans offered in Singapore offers most or all of the following features:

Risk-Free upon Maturity

Endowment products are most suitable for risk adverse profile. Most of the endowment products in the market are capital guaranteed upon maturity.

No medical examination

Most of the endowment in the market are guaranteed issuance. No medical questions will be asked upon application. It allows people with health conditions to purchase insurance policies again.

Encourage a habit of saving regularly

An endowment plan helps to nurture the habit of regular savings. It helps to open a disciplined route of savings. You are free to choose how much you wish to save monthly or yearly.

Flexibility of withdrawal

Some of the endowment plans give cash-back from the end of the second year. This feature allows you to withdraw your funds partially in case you need it. This cash-back features also allows you to draw a lump sum if you choose to withdraw it mid-way through the policy term for your needs.

Do take note that the cash-back forms part of your cash value and your maturity value will be lower if you withdraw all your cash-back. The best scenario is not to make any withdrawal for higher financial returns upon maturity.

Loan value available

In the case of rainy days, an endowment plan offers loan values after it attains its cash value. You can take a short-term loan to service your monthly premium, or to fulfil your short-term needs, of course with an interest rate set by the insurance company.

Read AboutHow can I accumulate a million dollar (Realistically)

Limited Payment or Regular Premium: Which is better?

For a higher rate of returns, consider a limited payment endowment and savings policy. As premiums are fully paid in the early years of the policy, there is a longer amount of time for the policy to accrue financial returns.

A regular premium endowment and saving policy does not allow as much time for financial returns to accrue. This is due to the premium paid in later years of the policy not having sufficient time to compound until the maturity of the policy.

Do take note that not all limited payment endowment have cash-back option for flexibility.

Read aboutEndowment and Saving policies: Is it the best option?

What are the Saving plans and Endowment policies available?

Without preferences and in no order of ranking, here are some of the popular endowment and saving policies available in Singapore:

Limited Premium Saving plans and Endowment policies

AvivaMyWealthPlan

AIAAIA Smart Growth (II)

EtiqaeSAVE Assure Presto

ManulifeManuWealth Secure

NTUC IncomeRevoSecure

Prudential:  PruSave Limited Pay

Regular Premium Saving plans and Endowment policies

AvivaMyEasySaver

AIAAIA SmartRewards Saver (II)

EtiqaeSAVE Flexi

ManulifeManulife ReadyPayout Plus

NTUC IncomeRevoSave

PrudentialPruflexicash

Read About3 Best Endowment Savings Plans in Singapore for Wealth Accumulation (2020 Edition)

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What should I consider when taking up an Endowment and Saving Policy?

Ensure the Premium Term is within your financial budget, be it monthly or yearly. The Policy Term must be a period of years that you are prepared to wait until the maturity of the policy. While the rate of returns is important, the endowment and saving policy should partially or fully reach one of your specific financial goals or objectives.

Read About3 things to consider before taking up a new financial product

Read About: 8 Financial Mistakes Commonly Made by Singaporeans

Considering an Endowment and Saving Policy or related insurance products?

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