An endowment plan is a life assurance policy that provides financial protection for you and your loved ones in the event of an untimely death. It also offers a savings component that can grow over time, giving you some money to tap into during retirement.
There are many different types of endowment plans available in Singapore, so it’s essential to do your research before investing in one. For those looking to open a regular savings plan, you can do so at https://www.home.saxo/en-sg/products/regular-savings-plan.
How to invest in an endowment
Decide what type of endowment plan you want
Two main endowment plans are available in Singapore: whole and term life.
Whole-life plans offer lifelong protection as long as you continue to pay the premiums, making them a good option if you’re looking for financial security in retirement. On the other hand, term life plans only provide coverage for a set period (usually 10-20 years).
While whole-life plans tend to be more expensive, they also offer the potential for higher payouts because the insurer can invest your premiums and earn a return on investment.
Compare different endowment plans
Once you’ve decided on the type of endowment plan, it’s time to compare different policies. Some factors to consider include:
- The insurer: Choosing a reputable and financially stable insurer is essential. Check their credit rating with an independent agency like Standard & Poor’s or Moody’s.
- The policy benefits: Make sure the policy covers what you need.
- The premiums: Premiums can vary significantly from one insurer to another. Get quotes from at least three different companies before making a decision.
- The investment returns: If you’re investing in a whole-life plan, find out what sort of return on investment you can expect.
Choose the right rider
Riders are supplemental features that you can add to your endowment plan. They can provide additional protection or benefits but will also increase your premiums.
Some familiar riders include:
- Critical illness rider: This pays out a lump sum if you’re diagnosed with a specified critical illness.
- Hospitalisation rider: This covers the cost of hospitalisation due to an accident or sickness.
- Disability income rider: This provides an income if you cannot work due to a disability.
Purchase the policy
Once you’ve compared different policies and chosen the right one, it’s time to purchase the policy. You can do this through an insurance agent or broker or directly from the insurer.
Be sure to read the fine print before signing any documents. And remember, you can always cancel the policy if you change your mind within the free-look period (usually 14 days).
Benefits of investing in an endowment plan
Financial protection
Financial protection is the most crucial reason to invest in an endowment plan. In the event of your untimely death, the policy will pay out a lump sum to your loved ones. It can help them cover funeral costs, outstanding debts, and daily living expenses.
Tax benefits
Investing in an endowment plan can also provide some tax benefits. The premiums you pay are usually eligible for a tax deduction, and the growth of your savings is tax-deferred, which means you won’t have to pay any taxes on the money until you withdraw it.
Death benefit
In addition to an endowment plan’s financial protection, it also provides a death benefit. It is a lump sum payout given to your beneficiary in the event of your death. The death benefit can cover funeral costs, outstanding debts, or any other expenses your loved ones may have.
Risks of endowment plans
Market risk
Market risk is one of the most significant risks of investing in an endowment plan, which is the risk that the value of your investment will go down due to market conditions. For example, if you’ve invested in a whole-life policy with an investment component, the value of your policy could decrease if the stock market crashes.
Policy lapse
Another risk you must consider is the possibility of a lapse in your policy, which can happen if you miss too many premium payments or if your circumstances change and you no longer need the coverage. If your policy lapses, you could lose all the money you’ve paid in premiums and any growth in your investment.
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