Intrigued by the sturdy appeal of endowment plans? This ever-green savings tool is a great way to grow your wealth and get decent returns without worrying too much about volatile market conditions.
Endowment plans are the epitome of a slowburn savings tool in which you let your money snowball for a couple of years (or even decades depending on the plan’s policy term), just in time to fund your child’s university education, put money down on a nest egg or set yourself up for a blissful retirement – basically any of life’s big ticket items.
Known for being relatively low-risk and dependable, it’s a relatively safe way to boost your savings – one that rewards patient folks as you can earn potentially better returns over time than your typical – or even the high-yield – savings account. If you’re interested to find out why endowment plans are all the rage these days, we’ve rounded up the top reasons why people take the endowment route to steadily grow their wealth.
1. They’re in it for the long haul
Some endowment plans in the market promise capital guaranteed upon maturity which lets you keep the premiums you’ve been dutifully paying. This suits patient investors with their eyes on the prize and are comfortable with setting aside a fixed amount on the regular or putting down a one-time lump sum payment at the start.
If you’re able to commit for a generally long period of time for the endowment to reach maturity, and you’re not in a hurry to cash out anytime soon (long-term maturity periods have up to 25-year tenures), this saving vehicle is for you.
Bear in mind that you can also opt for short-term endowment plans that mature in two to six years with potentially higher returns than their long-term counterparts. To get the full picture on the different types of endowment plans on the market, read up on our article on the best endowments plans in Singapore.
2. It’s a way to grow your finances
Endowment plans are not as high stakes as buying and selling shares in the stock market where you can lose it all with one wrong move. You have the option to choose between a participating or a non-participating life insurance savings plan.
Unlike a non-participating plan where your benefits are more or less guaranteed, participating plans involve non-guaranteed returns in the form of bonuses and cash dividends that entirely depend on how well that participating fund’s investments performed by the end of the policy term.
How this works: your insurer will put your premiums in a participating fund that invests in different assets to generate returns.
3. Easily enforce saving discipline, with life insurance coverage to boot
Think of endowment plans as a traditional savings plan that’s paired with insurance. This is perfect if you’re looking to be covered by some life insurance while also accumulating your savings. In order to be certain that what you’re getting into is worth your while, be sure to read carefully on how much insurance coverage you’ll be getting through your endowment plan’s benefit illustration.
How this works: your fixed premium payments will go towards your savings plan as well as your insurance coverage. While this differs from policy to policy, in the case of death or permanent disability, your total insurance coverage might be 101% or 105% of the premium paid.
4. High possibility of guaranteed returns
You’ll never have to worry that the savings and returns you’ve accumulated over the years will be for naught as your capital is guaranteed at the end of the policy term for some endowment policies. Certain policies in the market even offer early payouts and/or cash benefits after a fixed number of years.
Let’s take the non-participating Tiq eEasy Save V plan as an example. If you deposited a $30,000 premium over two years with a policy term of six years, guaranteed returns of 2.68% p.a. and non-guaranteed returns of 0.6% of the account value, you can cash out up to $34,661 when it hits maturity. Or better yet, you can opt not to withdraw and park your money there.
This allows your savings to grow indefinitely, regardless of market conditions. Isn’t that swell?
It all comes down to your risk appetite, financial goals, and saving habits. If you have a specific target amount that requires some serious saving discipline, a long-term endowment plan is right up your alley.
One thing’s for certain, the repercussions of terminating your policy early will not compel you to liquidate your savings should the temptation arise.
Read these next:
Best Short & Long Term Endowment Plans in Singapore (2020)
Endowment vs Insurance Savings vs Bank Savings: What’s The Difference?
Best Savings Accounts in Singapore to Park Your Money (2020)
Insurance Savings Plans: Singlife Account vs Etiqa Elastiq vs SingTel Dash EasyEarn
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By Marissa Saini
Your friendly neighbourhood cat enthusiast who enjoys not being broke. Spend less, save more is the name of the game. Firm believer that being financially savvy is not about the destination, but the friends you make along the way.