Understanding endowment insurance

3 min. read

Endowment insurance is available in participating and non-participating forms. Find out how endowment insurance works and what to watch out for.

Key takeaways

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.

How endowment insurance works

Assess the features and risks and see if they match your needs.

	Participating Endowment	Non-participating Endowment
Type	Bundled	Bundled
Main objective	Protection plus investment - accumulation of future bonuses or cash dividends.
Scope of coverage	Covers death. Most products cover total permanent disability and some products cover major illnesses. Payment schedules and definitions of disability vary across products and insurers. It usually matures after a fixed period, e.g. 10, 15 or 20 years.
Cash value	Cash value comprises guaranteed benefits and non-guaranteed bonuses. When you surrender your policy, you will only receive the cash value of the guaranteed and vested bonuses, which may be less than the total death benefit of the policy. Bonuses have a guaranteed and non-guaranteed component. Bonuses are declared each year, based mainly on the performance of the participating fund. Once declared and added to the policy, it is guaranteed and the insurer cannot take it away or reduce the amount. A policy loan can be taken against the cash value of a policy. The interest charges can be steep. Any unpaid amounts from the loan will be offset from the policy’s cash value or claim payout.	Cash value comprises guaranteed benefits only. Not entitled to bonuses. A policy loan can be taken against the cash value of a policy. The interest charges can be steep. Any unpaid amounts from the loan will be offset from the policy's cash value or claim payout.
Investment risk	You will have to bear investment risks as some of the illustrated bonuses are non-guaranteed. Insurers generally try to avoid large fluctuations in the non-guaranteed bonuses from year to year by smoothing bonuses over time. If insurers do not generate sufficient investment returns, your bonuses or cash dividends (i.e. non-guaranteed benefits) may be reduced.	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	Premiums are typically fixed at the point of purchase and will not increase over time. Premiums can be paid on a regular basis. Typically requires higher premium than term products for the same level of sum assured.
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

Guide to types of life insurance0/9
Life insurance: Comparing term and bundled products3:00 Understanding term insurance3:00 Understanding whole life insurance3:00 Understanding endowment insurance3:00 Participating versus non-participating policies6:00 Understanding investment-linked insurance policies5:00 Investment-linked policies: Guide to fees and pricing4:00 Investment-linked versus participating life insurance policies2:00 Understanding annuities2:00