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An endowment plan is a type of life assurance policy. It provides financial security and protection for you and your loved ones in the event of your untimely death. There is a savings component in endowment plans. You can grow your savings over time with investments. If you live a long and full life, you can tap into the plan for retirement money.
There are many different types of endowment plans available in Singapore. If you would like more information on how you can get started and learn more about the available types, you can visit https://www.home.saxo/en-sg/products/regular-savings-plan.
How to invest in an endowment plan
If you are eager to get started with an endowment plan, you will have to think about the investments you want to make.
Decide what type of endowment plan you want
Two main endowment plans are available in Singapore: whole-life and term.
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. When you are reviewing policies, you must consider these factors:
- Insurer: The insurer is the entity that ‘issues’ your endowment plan. A reputable insurer will make sure your plan is secure.
- Policy benefits: These benefits come with the chosen policy, including any returns and guarantees.
- Premium: The premium is the amount of money you need to pay to purchase the plan. Premiums can vary significantly from one insurer to another. Get quotes from at least three different companies before deciding.
- 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 for you, you can purchase the policy through an insurance agency or through a broker or bank.
Benefits of investing in an endowment plan
Financial protection
Financial protection is the most crucial reason to invest in an endowment plan and it is the reason most people invest in one. If you do get in an accident or 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 tax benefits. The premiums you pay are usually eligible for a tax deduction. Additionally, 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. A death benefit 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. It 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. Lapses 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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