Endowment policies are often marketed to help you meet a financial goal like paying for your children’s education, or to build up savings over a fixed policy term. But unlike savings deposits, the guaranteed cash values you get back may be less than the sum of the premiums paid. This is because part of the premiums will pay for insurance protection while the rest is invested and subject to investment risk.
Endowment policies usually mature after a fixed period of time, e.g. 10, 15 or 20 years.
The insurance protection provided by endowment policies is usually small so make sure your insurance protection needs are sufficiently covered by the policy if this is important to you. You could also consider another insurance product. On the other hand, if you are buying an endowment policy to help you save or invest but already have sufficient insurance coverage from other insurance products, do consider carefully whether to proceed, as you could be paying for something that you don’t really need. Remember to compare the product’s features, returns and risks with other investment products.
Endowment policies are available in different forms, such as participating (“par”), non-participating (“non-par”) and investment-linked insurance policies (“ILPs”).
- Non-par endowment policies pay only the sum assured upon the death of the insured (or if provided, if the insured becomes totally and permanently disabled during the policy term) or at maturity. Non-par endowment policies build up some cash value which may be paid if the policy is surrendered early.
- Par policies pay bonuses, building up cash values. Upon the death of the insured, par policies usually pay the sum assured plus any bonuses accumulated to date as the death benefit.
- The ILP payout upon the death of the insured may be the higher of sum assured or the value of the ILP units at the time, or some combination of sum assured plus value of ILP units.
Regularly monitor how your endowment policy performs, especially when you are nearer the time you need the money, e.g. to pay for your children’s education. If need be, you may have to save more or consider other investments or take steps to preserve what you have accumulated.
The above information is prepared in collaboration with the Life Insurance Association of Singapore.