All about Endowment Policies

endowment policiesEndowment Policies also commonly known as Savings Plan are offered by various Insurance Companies as an alternative financial tool for higher returns compared to most if not all bank deposits. Furthermore, it is also an instrument which encourages regular savings habits for us.

Endowment policies are considered lower risk financial instruments which offers guaranteed amounts to be paid out upon maturity. In other words, the insurance company has to pay the guaranteed amount stated on the Benefit Illustration*(BI).

* Benefit Illustration is a document generated by the insurance company which states the projected returns.

There are many factors and features of Endowment policies, thus it would be broken into a few articles to ensure we get to know a holistic view. Look out for Part 2 soon!

Typically, Endowment policies can be for anyone that has additional capital that they would not require to use for X number of years until the Endowment Policy matures*. For Endowment policies, it is also more suited for people who are looking at a lower risk form of investment with guaranteed maturity.

* Endowment Policy matures – a stated number of years that the policy would generate returns until a lump sum is paid out

We have to be very clear about what our saving goal is before we are able to decide what specification our Endowment Policy should have. One thing is for sure, Endowment Policies cannot make you RICH! What it can do is give you stable returns in a range of 3-4% per annum without too much impact from the market conditions.

If you have nodded your head to more than 1 of these statements, Endowment Policy is probably suitable for you:

  • You prefer your capital to be guaranteed to a certain extent
  • You cannot accept your investment to be losing money
  • You do not spend everything in your bank account
  • You are saving part of your income constantly
  • You know you will save $X amount for the next X number of years
  • You can live with not touching this saving for the next X number of years
  • You are not struggling with daily expenses
  • You are sick and tired of lower interest rates
  • You invest in too many non-guaranteed products
  • You are lazy to monitor the stock market
  • You have simply no time to manage investments
  • You have a smaller risk appetite

Of course there are many more factors why Endowment Policies are suitable for you. But if you are someone who has huge risk appetite and if you want a lot more than 3-4% returns per annum for your entire investment portfolio, then Endowment Policies are NOT for you.