Could an endowment plan meet your investment goals? We track down the best endowment plans available in Singapore and how to choose one, whatever your purpose as an investor.
Key Takeaways
Endowment plans are a well-established way to invest in a wide range of assets such as stocks, bonds and property and to receive a lump sum at a future date.
The value of endowment plans is designed to go up not down. So they suit relatively cautious investors, or those who want to be confident of receiving that future lump sum.
They also pay out a lump sum on the death of the investor.
There are many types and benefits: short term and long term, some with innovative insurance benefits, and plans with a mix of guaranteed and non-guaranteed returns.
To avoid the confusion of too much choice, focus on the ultimate purpose of your investment and which plans and features best serve that purpose.
What Is An Endowment Plan?
An endowment plan is a savings product which provides a future lump sum at a maturity date, usually after a fixed term.
Life cover is also provided so that if the investor dies before the plan reaches maturity a lump sum is paid out.
There is a great deal of variety and innovation in this market. For example, some plans provide insurance benefits beyond life cover and some provide flexibility over when withdrawals can be taken.
Endowment plans are provided by life insurance companies with very large sums invested by experienced fund managers.
Types Of Endowment Savings Plans
Short term plans
A short term endowment plan tends to be funded with a single premium, which is invested for say 2 or 3 years.
Long term plans
A long term endowment plan tends to be funded with regular premiums, for say 10, 15 or 25 years.
Flexible plans
Flexible plans allow cash withdrawals within the term of the plan. This is very useful for funding needs such as school fees where cash is needed every school term or annually.
Other types of plans
Some plans allow you to pay premiums for a number of years and then stay invested without paying further premiums. Or you can take an income, say in retirement. Some allow you to reinvest when the plan reaches maturity.
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Best Endowment Plans
Best 2 year short term endowment plan in Singapore with guaranteed returns
Great SP | Guaranteed Returns
We picked out this one simply for the rate of 2.3% p.a. This is the highest guaranteed return we could find for a 2 year term (and a minimum investment of S$10,000).
The plan pays out 101% or 105% of the premium on the death of the investor depending on their age at outset. It also pays out on total and permanent disability.
These plans are issued in tranches which expire or get fully subscribed. So if you want one, don’t delay.
Best 3 year short term endowment plan in Singapore with both guaranteed and non-guaranteed returns
DBS/Manulife SavvyEndowment 19
Again, we picked this out for the rate. This is the highest potential total return we could find for a 3 year term (and a minimum investment of S$5,000). The potential return of 2.73% p.a. comprises a guaranteed 2.58% p.a. plus a potential non-guaranteed 0.15% p.a.
The plan pays out 101% of the premium on the death of the investor. Investors also qualify for enhanced interest rates on DBS cash deposits.
As usual for short term plans this is issued in a tranche which will expire or get fully subscribed. So if you want one, don’t delay.
Best long term endowment plan in Singapore for wealth building
HSBC Life Wealth Builder
One of the risks with a long term endowment is that you might not be able to pay the premiums for the full term resulting in early termination of the plan and a possible loss on your investment.
A solution is to choose a plan with a shorter term payment period and a longer term investment period. Or a plan where premiums can be paused.
This plan offers both those features. Premium terms can be 5, 10 or 15 years. The funds can then remain invested until age 120, which is in effect to allow them to stay invested for a normal lifespan. From the third year, premiums can be paused for up to a year.
Withdrawals are available at any time, though of course funds withdrawn in the early years are unlikely to see returns above shorter term alternatives and should be avoided.
This sort of plan can work well for funding mid-life expenditures such as a deposit for a house or flat as well as building longer term wealth.
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Best endowment plan in Singapore for funding school fees/flexible withdrawals
Etiqa Enrich flex plus
We like this plan for its simplicity. It does what it needs to and the options are appropriate without being too numerous and confusing.
Returns are guaranteed and non-guaranteed, which we think is appropriate for a long term plan.
We also like the optional riders which allow for premiums to continue if the investor dies, becomes totally and permanently disabled, or is diagnosed with a list of severe and critical diseases. These help to protect the school fees from the unforeseen.
As you would expect for a plan designed to fund education, the timing of withdrawals is flexible.
Best endowment plan in Singapore for income in retirement
Singlife Flexi Retirement II
Investing up to retirement and beyond is likely to be the longest term financial commitment anyone will make. A suitable plan will reward very long term commitment and also anticipate what can happen in the meantime.
This plan provides protection for premiums in the event of total and permanent disability, a lump sum if diagnosed with a terminal illness, and a bonus at the selected retirement age. As you’d expect, it provides a reliable income in retirement.
You can also take a lump sum at retirement if you prefer, or defer retirement by reinvesting. And you can add a useful rider which is designed to help with any care costs.
If you pay by single premium(s), an SRS option is available.
We think that’s well thought through: this plan meets a wide range of typical needs after retirement and provides some sensible protection before it.
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Comparison Of The Top 5 Plans
How Does An Endowment Plan Work?
Investment approach
Premiums are invested by the endowment provider in a wide range of assets such as stocks, bonds and property. At regular intervals the provider adds investment returns to their endowment plans for the benefit of investors.
Plans are ‘non-participating’ or ‘participating’. A non-participating plan has guaranteed returns. A participating plan includes a non-guaranteed element. The non-guaranteed element adds value to the plan if the underlying investments do well by ‘participating’ in the profits of the provider.
Because participating plans have a non-guaranteed element, the risks are slightly higher than non-participating plans, but so then are the potential returns.
Both types of return increase plan values, unlike more direct investments in financial markets where values can go down as well as up. The effect is that the investor in an endowment plan benefits from market gains without suffering their volatility.
Risks
In exchange for steady returns, endowment plan providers want investors to pay regular premiums or leave their single premium invested for the full term of the plan. Stopping premiums or making withdrawals before maturity can result in getting less back than you put in.
Some plans, however, promise that the value will at least equal your initial investment after a set term. Also, some pay a bonus at maturity, again rewarding those who stay the full term.
Endowment plan providers do not pass on all their underlying gains to investors. Some of the underlying gains cover their costs and profits. And they keep back some gains to hedge against dips in the value of the assets in which they invest.
That is a good thing for relatively cautious investors. Endowment plans are designed to protect payouts from last minute downturns in markets.
Insurance elements
Also a good thing is the life cover element. Usually this is small, especially on short term plans: typically the premium plus 1-5%. But some plans pay out multiples of that amount if the investor dies.
Others allow ‘riders’ to be added so that premiums continue if the investor dies or is diagnosed with one of a range of diseases.
Further insurance benefits are sometimes available, such as enhanced payouts in the event of a terminal illness, total and permanent disability, or accidental death. Some allow a second life to be insured so that the plan can continue beyond the life of the first investor.
Of course, the more insurance benefits a plan has built in, the more of the investor’s premium is used to pay for them rather than being invested.
Things To Consider Before Choosing An Endowment Plan
- What is the ultimate purpose of your investment and the required timing of the payout?
- Do you need the life cover or other insurance benefits?
- What investment risks are you comfortable with?
- What type of returns do you prefer: participating or non-participating?
- Can you commit to paying the premiums or staying invested for the whole term?
- What happens if you stop premiums or take withdrawals before maturity?
- How much flexibility do you need in paying premiums or making withdrawals?
Advantages And Disadvantages Of Endowment Plans
Advantages:
- A well-established way to enjoy the investment returns of large and diversified insurance funds
- Guaranteed returns available on some plans
- Expect to beat the return on cash deposits in the long term
- Designed to protect against dips in financial markets
- Pays out on the death of the investor
- Can pay out on other insured events such as total and permanent disability or terminal illness
Disadvantages:
- Returns not necessarily guaranteed
- Short term rates not necessarily better than cash deposits
- Charges not transparent
- Stopping premiums or withdrawing early can result in loss
- No choice of funds or fund manager
- Part of your premium pays for insurance benefits
- Some insurance options require medical underwriting
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How To Choose The Right Endowment Plan
- Consider the ultimate purpose of your investment and whether an endowment will achieve it. When do you need the payout? Is a relatively cautious investment the right way to fund it? Do you need the life cover or other insurance benefits?
- Compare potential providers’ rates for non-participating returns. Also consider potential providers’ track records for participating returns, while remembering that it is future investment performance which matters, not those in the past
- Consider whether you can commit to the full term of the plan, and what flexibility there is for withdrawals without penalty (if any)
- Short term endowment plans are issued in tranches. So look out for the good deals and if you see one you want, don’t delay
- Consult your financial and tax advisors as appropriate
Conclusion
Endowment plans can meet a wide variety of investment goals. Being relatively low risk they suit cautious investors or investors who have a specific purpose in mind for which steady returns are important.They are however designed to run for the full term, the main risk being potential loss on early termination or withdrawal.Insurance elements can be useful in protecting the ultimate purpose from the unforeseen.
*KILDE PTE LTD (“Kilde”) is incorporated in Singapore (registration no. 201929587K) is licenced and regulated by the Monetary Authority Singapore and holds a Capital Markets Services Licence (CMS101016) and an Exempted Financial Advisor License under the Financial Adviser Act. The information provided in this marketing material is intended for “accredited investors” and “institutional investors” (collectively “qualified persons”) only. This marketing material, and any information in this marketing material, or any documentation that Kilde provides in relation to this marketing material is provided without any representation or any kind of warranties whatsoever (whether express or implied by law).
This advertisement has not been reviewed by the Monetary Authority of Singapore.
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