Often sold by insurance agents and personal bankers in Singapore, a traded endowment plan is a type of term life insurance policy that comes with a savings plan feature. Essentially, what it does is that it gives a lump sum payment upon either the maturity or death of the insured.

Typically, an endowment life insurance policy is used to help save up for important life events while earning higher interest as compared to the usual savings account. These life events can range from college education, a wedding, a sabbatical year, and so on. Due to the flexible payment terms, maturity and investment-linked funds, it’s also well-suited towards compensating for shortfalls in retirement savings or paying the down payment for a new home!

As someone planning to invest in a traded endowment plan in Singapore, here’s what you should know:

Guaranteed returns

Unlike the risk that comes with investing in the stock market, endowment plans tend to yield some form of guaranteed returns. So, as long as you faithfully pay up all the committed premiums and hold on to the policy till maturity, you can rest assured in receiving the guaranteed returns. What’s more—the cash payout at the date of maturity is usually higher than that of whole life or standard term insurance due to the joint investment and insurance feature.

If you’re thinking of investing, but are doubtful of your capabilities in earning additional returns or even retaining your principal, consider endowment plans as an alternative.

Bonus non-guaranteed returns

In comparison to savings accounts and fixed deposits, the policy is able to generate higher, non-guaranteed returns, with the exact amount being dependent on the performance of the insurer’s participating fund. This bonus is used to pay the premiums of the life insurance policy. Only when the bonus is not high enough to cover the premiums will you have to pay the premiums out of your own pocket.

Keep in mind that a higher premium equates to a higher potential return.

Insurance-&-investment-in-one

A majority of endowment policies offer some insurance coverage as one of the overall benefits of the plan. Usually split between between investment and insurance funds in which the insured can choose how much is allocated to each, it also allows one to choose the term or maturity of the policy. The insurance coverage commonly includes total and permanent disability, critical illness as well as death.

This makes it a popular option for parents looking to save and invest some money for their children as a form of security in the future.

Long Commitment Period

As a rule of thumb, expect to have to stay committed to your traded endowment plan for a period of 10 to 20 years. This translates to making prompt payment on your premiums and not surrendering the plan. It’s a known fact that the penalty for early termination for the plan can be rather costly. Doing so within the first few years may even end up with you getting nothing back for your efforts.

If the question of “Is it possible to sell my endowment?” has popped up in your mind, you’re right to think of it. It is in fact possible to get a buyer to purchase your endowment at a higher price than the surrender value your insurance company is willing to pay you. Once you do sell it off, you will no longer be liable for the policy. This can be a viable way to minimize your loss. However, do note that endowment plans paid for through CPF or SRS are not eligible for sale.