Endowment plans are one of the most popular ways of growing your wealth in Singapore. However, people in Singapore often have to take the help of their financial advisors to understand the pros and cons of this product. To ensure that your hard-earned money is put to good use, it is very important to know how to calculate the returns that you will receive from an endowment policy.

Guaranteed and Non-guaranteed returns

When you invest your money in endowment schemes, your money is combined with the money invested by others into a single fund, commonly known as a participating fund. Once the term of the policy ends, you will receive an amount in a guaranteed and non-guaranteed format. You will get the guaranteed amount regardless of how the fund performs, but how much you get as part of the non-guaranteed format depends on how the participating fund performs.

What can you get from an endowment plan?

With endowment policies, you will receive annual bonuses when the performance of the participating fund is good. These windfalls are applied towards premiums. Regular bonuses will safeguard your returns from the volatile market. In case the returns you receive are small, the bonus amount is not likely to be sufficient to pay premiums.

Purchasing an endowment plan in Singapore

If you are looking to save for an event in the future that will require you to spend a large amount such as a wedding or your kid’s higher studies, an endowment scheme is one of the best solutions. The variety of options you get in the form of investment-linked funds, payment terms, and maturity, make endowment policies perfect for meeting the gaps in retirement savings and also find out more different kinds of insurance in Singapore.

Pros of endowment plans

  • Unlike investing in stock markets, endowment schemes normally come with guaranteed returns.
  • In Singapore, many endowment policies offer some form of insurance as part of the general benefit of the plan.
  • Compared to other instruments such as fixed deposits and savings accounts, endowment policies produce greater non-guaranteed returns for policyholders.

Cons of endowment plans

  • Actual returns can often be lower than expected long-term returns.
  • Since the commitment period is long, you cannot surrender the plan and you have to be prompt with your premium payment.
  • You will be charged a hefty penalty if you opt to terminate your endowment scheme early.
  • There is a common belief among Singaporeans that when you purchase an endowment policy, you will get all the premiums back when the plan matures. This belief is not always correct and you must bear this in mind before opting to invest.

Things to consider before buying endowment plans in Singapore

At the federal level, the surrender value of an endowment policy may be taxed in Singapore. As a result, they are losing popularity as other insurance plans offer a tax benefit. However, there is an advantage of getting a payout when the policy matures. With some forethought, you could utilise this amount as the sum you require to fix a gap in savings. An endowment plan provides the double benefit of investment and insurance, but at a comparatively low risk.

You cannot make a like-for-like comparison when it comes to endowment schemes. So, if you are planning to purchase an endowment plan, you should be aware of the difference between the real returns that you get and the long-term average return. If you fail to do the right research, you may accidentally purchase something that is based more on insurance, rather than on investment.

 

 

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