To grow your savings without putting in much effort is an ideal situation. In Singapore, banks offer short-term endowment plans that help you experience increasing your savings by just investing. This article will provide the information you need before deciding to buy this kind of endowment plan.
Endowment plans are saving plans aimed to help you hit a target amount later. Short-term endowment plans are a good alternative to savings accounts or fixed deposits. In this plan, you pay for the premium and wait for the funds to mature before cashing out more than your capital.
Mid/Long Term Endowment Plans
Mid/long-term endowment plans have a policy year that ranges from 5 years to 25 years. The regular premium is paid for the entire premium term. The interest rate determines how much you can expect at the end of the term. The return amount is still not guaranteed as the actual benefits will depend on the participating fund’s market conditions and future performance.
Long-term endowment plans are best for those who aim to set aside money for a child’s education plan or prepare for their retirement. If you want to save up money for your future, then a long-term endowment plan is a good option. The downside is that terminating it before its maturity could be costly as the surrender value, if any, could be zero or less than the capital paid.
Ideal for Who?
Endowment plans are ideal for parents who wish to save and invest in their loved ones’ future. It is also a popular option for individuals who have other life goals, such as hitting a target retirement nest egg. If you are willing to have a part of your income as park cash for a certain period, then an endowment plan is a good idea.
If you can commit to the payment of premiums, you will surely have great cash benefits. In looking for endowment plans, always consider the useful benefits and if the returns are high enough. A healthy credit rating is also ensured.
Common Reasons Why People Buy Endowment Plans
Most individuals who opt to buy endowment plans take them because of cash benefit, investment and may serve as an education fund and/or retirement income. These are the common reasons why people commit to paying premiums for a certain period of time. The idea of securing a good amount of money in the future attracts most Singaporeans today.
The risk of having the returns of endowment plans is lower than other investment firms such as market stocks or ETFs. Unlike your investment in the stock market, endowment plans usually have some form of guaranteed returns per annum (p.a.). These reasons make investing in an endowment plan is a better option even if the income from stocks or ETFs may be relatively higher.
Moreover, endowment plans include insurance coverage. This is not usually available to other forms of investment. Certainly, endowment plans are all about security.
Top Short-term Endowment Plans (EP)
1. GREAT SP Series 2
It is a limited short-term EP by the Great Eastern, a member of OCBC Group.
Minimum premium: $10,000
Policy term: 1-5 years
Maturity benefit: With the guaranteed maturity benefit of 106.53%, you will receive your total guaranteed maturity benefit of $326.50, provided you hold on until the end of the 2-year policy term.
Tranche: The application is already closed.
2. DBS SavvyEndowment 4
It is a short-term EP issued by the DBS. Manulife underwrites the insurance policy of this plan.
Minimum premium: $5,000
Policy term: 3 years. It also has the benefit of basic death coverage of 101% of the premium.
Maturity benefit: The plan is a participating endowment plan. The returns are split into a small guaranteed component and a non-guaranteed portion that depends on fund performance. The capital is guaranteed at the end of the policy term.
For instance, if you bought a $10,000 premium at the end of the policy term, you could cash out anything from $10,283 (guaranteed) to $10,423.
Tranche: The current tranche is open. To buy a plan, you have to be a DBS/POSB customer to apply.
3. Manulife Goal 7
It is a short-term EP of Manulife.
Minimum premium: Single premium of $10,000. This may be paid via cash or SRS.
Policy term: 3 years. There is also a basic death benefit of 101% of the premium. The plan also allows the option to withdraw fixed yearly income or leave it to accumulate for more interest.
Maturity benefit: For the first 2 policy years, there is a fixed yearly income of 1.39% of the single premium payable at the end of each policy year. This adds up to a total of 2.78% over 2 years. In case you opted not to withdraw the said fixed yearly income until the policy maturity, you will earn a guaranteed 1.39% p.a. This can go up to 4.23% p.a.
The capital is guaranteed only at the end of the term. As an illustration, if you bought a $50,000 policy have not withdrawn any annual payment, you can expect to cash out anything from $51,421 (guaranteed) up to $52,116 at the end of three years.
Tranche: It is currently open.
4. LIC Secure Growth 2
Life Corporation of Singapore offers LIC Secure Growth 2. LIC is a relatively small player in the insurance industry of Singapore. LIC Secure Growth 2 is promising because of its additional benefits.
Its plan covers a first-year accidental death benefit for policyholders below age 70. If there is an accidental death, it allows an additional 10% of the premium on top of the death benefit’s 101.12%/101.22%.
Minimum premium: $20,000 single premium (up to $150,000). Payments have to be paid using a paycheque or cashier’s order. If your premium is more than $50,000, you will have higher returns.
Policy term: 3 years in total. Its death benefit is at 101.12% or 101.22%, depending on the premium size.
Maturity benefit: It will depend on the quantum of your premium. A single premium from $20,000 – $45,000 has a guaranteed simple interest rate of 1.12% p.a. . Single premiums from $50,000 – $150,000 has a guaranteed simple interest rate of 1.22% p.a.
Tranche: It is currently open for applications.
5. LIC Wealth Plus 6
This is another endowment plan offered by LIC. LIC Wealth Plus 6 has a slightly longer policy term, but it gives higher returns.
Minimum premium: a single premium of $20,000 (up to $200,000). Premiums are paid using cheque payment or cashier’s order only.
Policy term: 5 years. If there will be untimely death, the single premium shall be returned. A guaranteed addition of the simple interest rate of 1.20% p.a. or 1.25% p.a. (depending on the premium size) each year, starting from the policy’s commencement to the date of death. The plan provides for the same benefits for those under the age of 65 who were diagnosed with a total permanent disability.
Maturity benefit: It depends on the quantum of the premium. A single premium of $20,000 – $45,000 has a guaranteed simple interest rate of 1.2% p.a. . While single premiums from $200,000 – $150,000 has a guaranteed interest rate of 1.25% p.a..
Tranche: The plan is currently open for applications.
6. NTUC Income Gro Capital Ease
This is a single premium endowment plan with a short commitment period of just two years. This plan is non-participating, so the expected return will be limited to guaranteed returns. It is important to note that there are no non-guaranteed returns on top of the 1.85% p.a.
Minimum premium: $5,000. This premium may be paid via eNets or PayNow or through your Supplementary Retirement Scheme (SRS) funds. A minimum of $20,000 is required if you buy the plan through a financial advisor.
Policy term: 2 years. The plan also covers death or total permanent disability. If such an incident happens in the first year, the return will be 100% of the premium. If it happens in the second year, the payout is 105%.
Maturity benefit: 1.85% p.a. for the endowment plant, and together with the insurance coverage, the total return is 3.73%. For example, a $10,000 premium will produce a return of $10,373 at the end of the policy term.
Tranche: Online application has been closed, but you may still sign up for the NTUC Income Gro Capital Ease at physical Income branches on a first-come, first-served basis.
7. Etiqa Tiq 3-Year Endowment Plan
The plan is a non-participating. It only has a policy term of 3 years.
Minimum premium: $10,000 single premium. The premium may be paid via bank transfer or PayNow. It is not SRS-eligible.
Policy term: 3 years. The plan includes a death benefit of 101% of the single premium.
Maturity benefit: A guaranteed return of 1.8% p.a. For instance, a $10,000 premium will have a $10,643 at the end of the term.
However, make sure you can commit to the three-year policy period as there is no guarantee of your capital or the returns if you terminate the policy before maturity.
Tranche: It has been fully subscribed to.
Premium: This is the money you pay for the endowment plan, also knowns as the capital. The premium may be paid either in a one-time lump sum payment or staggered over several months or years.
Policy term: This determines the time before the endowment plan matures. Short-term endowment plans mature within two to six years. Long-term plans, however, have a policy maturity period of either 10 years, 15 years, 20 years, or even up to a fixed age.
Maturity benefit: This refers to the amount you will receive upon the end of your plan’s term. It is usually expressed as a percentage p.a. Some plans have guaranteed returns. There are also that have either guaranteed and non-guaranteed components for the returns.
Tranches: Endowment plans are usually offered for a limited time only and with a limited number of policies. This is especially true with short-term and/or single premium plans.
Participating or non-participating: There are endowment plans that allow the insurer to put your premiums into a ‘participating’ fund. In other words, the insurer will invest your premium on your behalf. If this investment turns out well, you will share your profits apart from the policy’s guaranteed returns. The non-participating plan means the other way around.
Insurance coverage: In every endowment plan, a small portion is taken for insurance. In short-term endowment plans, the amount of insurance is minimal.
Capital guaranteed upon maturity: Endowment plans that are capital guaranteed mean that there is an assurance that you will get back your premium upon maturity. However, if you terminate the plan before its maturity, you will not enjoy such a guarantee.
How Do Endowment Plans Compare to Other Savings Products?
High-interest savings accounts
There are bank savings accounts that earn interest on the money you keep in the bank. The yield may be as high as 45% p.a. depending on the savings account condition. There are also high-yield savings accounts with ‘level-up criteria’ such as crediting your salary, spending on one of the bank’s credit cards, start investing, taking up a loan, and more to earn higher interest rates.
The interest rate of savings accounts is unpredictable. Unlike endowment plans, the interest rate in savings accounts is not clearly stated from the start. There may be changes with short notice.
It is a form of investment where you earn a guaranteed interest for the money you deposit with the bank over a specified duration. The earned interest may be paid out at regular intervals, often quarterly or annually. Generally, you may withdraw your money from the fixed deposits even before the end of the tenure. The downside of this, however, is you will get less interest or no interest at all.
Singapore savings bond (SSB)
The Singapore Government Securities issue SSBs (SGS) issues SSB. The Singapore government backs the same. SSBs provides for step-up interest earnings on your savings. The interest rate usually starts low, and it increases every year until the 10th year.
The key in SSB is the longer you hold onto it, the more interest you receive. The payment of interest is expected every six months and automatically credited into the bank account is linked to your CDP Securities account.
Factors to Consider in Choosing the Best Short-term Endowment Plans
There are different cash benefits in getting short-term endowment plans. However, what is best for you will still depend on your situation. From the discussion above, we encourage you to consider your saving goals, commitment period, the amount you are willing to pay, policy benefits and coverage, and guaranteed returns of the plans to determine what is the best for you.
If you have income that may be put and sealed to a bank for a short period of time, then getting a short-term endowment plan is a good move. At the end of the policy term, your original income will grow your saving in a low-risk way. Certainly, this is one way of having a passive income.
The good thing with this kind of endowment plan is the assurance that you will not lose your capital provided that you don’t cancel the policy prematurely. If you have plans for the next 2 or 3 years, like education or retirement, then getting a short term endowment plan today will be a good idea. It may also be availed of to prepare for a wedding or to buy a home.