Endowment insurance is available in participating and non-participating forms. Find out how endowment insurance works and what to watch out for.
- Endowment policies are bundled products which typically require higher premiums as they provide both investment returns and protection coverage.
- Bonuses projected by a participating endowment policy are not guaranteed and may fluctuate.
- A non-participating policy only provides guaranteed benefits and is not entitled to bonuses.
- Prepare to commit to the period of the policy. Early termination may result in losses.
- If you take a loan from your cash value, it has to be repaid with interest. It will make it harder for your money to grow.
What is endowment insurance?
Endowment insurance products are often marketed as a savings plan to help you meet a specific financial goal, such as paying for your children’s education, or building up a pool of savings over a fixed term.
But unlike deposits, you may not get back what you put in. A part of your premiums goes towards insurance coverage, while the rest is invested and subject to risk.
Endowment insurance policy is available in different forms such as:
Participating endowment policies
Participating endowment policies share in the profits of the company's participating fund. Your share of the profit is paid in the form of bonuses or dividends to your policy.
Bonuses or dividends are not guaranteed as they depend mainly on the investment performance of the participating fund. When you make a claim, bonuses or dividends which have been declared will be paid in addition to the sum assured.
Endowment policies have cash values which will build up after a minimum period, and this differs from product to product.
Non-participating endowment policies
Non-participating endowment policies have guaranteed maturity values and cash values.
Anticipated endowment policies
Anticipated endowment policies are similar to regular endowment policies except that a part of the sum assured is paid at pre-specified intervals during the term of the policy. The balance of the sum assured together with the accrued bonuses (if applicable) is paid at maturity.
They are available as participating and non-participating policies.
See also: Participating versus non-participating policies
How endowment insurance works
Assess the features and risks and see if they match your needs.
|Participating Endowment||Non-participating Endowment|
|Main objective||Protection plus investment - accumulation of future bonuses or cash dividends.|
|Scope of coverage||
||None as the benefits are guaranteed by the insurer.|
|Expense risk||You will have to bear expense risks whenever there is an expense overrun. This could reduce the value of future non-guaranteed bonuses.||None as the benefits are guaranteed by the insurer.|
|Mortality/morbidity risk||You will have to bear mortality/morbidity risks whenever the claims experience of the fund is worse than expected. This could reduce the value of future non-guaranteed bonuses.||None as the benefits are guaranteed by the insurer.|
|Premium level and charges||
|Riders||Riders can be attached to enhance the benefits provided by the policy. As this may vary from product to product, check with your insurance company on costs and for more details.|
Things to note
- Endowment products are sometimes incorrectly marketed as fixed deposits. You may not get back what you put in as a part of your premiums will be used to pay for the insurance coverage or when you surrender the policy early.
- Think twice before buying an endowment product to build your savings if you do not need the insurance coverage.
- Compare the returns, features, and risks of the product against other investment products in the market.
- Buying a life insurance policy is a long-term commitment. Early termination causes you to lose money. Can you afford the premium?
Guide to types of life insurance
Life insurance: Comparing term and bundled products Understanding term insurance Understanding whole life insurance Understanding endowment insurance Participating versus non-participating policies Understanding investment-linked insurance policies Investment-linked policies: Guide to fees and pricing Investment-linked versus participating life insurance policies Understanding annuities