Endowment Plans: My Forgotten Pots of Gold

With bank deposit interest rates nosediving, people are making a beeline for short-term endowment plans with promises of guaranteed capital and guaranteed returns instead. A check of the websites of various insurers in Singapore showed that almost all of their short-term endowment plans with 2 or 3 year tenures have been fully subscribed.


From 5 to 29 May 2020, Great Eastern ran their Great SP campaign offering 2-year single premium endowment plans with guaranteed capital plus guaranteed returns at 1.8%, and they were quickly snapped up. The plans were actually rather attractive, considering that they offered guaranteed acceptance for coverage against death as well as total and permanent disability. In addition, the plans covered up to S$250.00 per day hospital cash benefit for accidents and diseases like COVID-19 and dengue fever.


No medical check-up was required and the plans could be purchased online. Given the low interest rate environment and insurance coverage included in the plan, it actually made perfect sense for risk-averse seniors (within the age of acceptance) safeguarding their nest eggs to park their funds in such a plan.


Three days ago, I was informed of a new short-term endowment plan by one of my bankers. NTUC Income had launched Gro Capital Ease, a new 2-year single premium endowment plan with guaranteed capital and guaranteed returns at 1.85%. Like Great SP, it too offers guaranteed acceptance for coverage against death as well as total and permanent disability and can be bought online. I will be surprised if this plan doesn't get snapped up in a flash.


I haven't bought any for myself, but the call from my banker prompted me to look up the endowment plans I had purchased years ago to see how they were doing.


My first policy was a 21-year endowment plan I had bought the year after I was called to the Bar. A friend of my mom's who worked as an agent for Prudential was quick to learn of me starting a full-time job, and promptly cornered me one afternoon. Agents are all adept at sniffing out fresh, young blood. After some hum and haw, I finally agreed to append my signature to the papers and cut my first cheque for an insurance premium.


Shortly after that experience, more insurance agents started knocking on the door. I resisted many of their proposals, but not all. A friend in need is a friend indeed, and to me, essential insurance like term life and comprehensive medical policies are such friends indeed.


The second endowment plan I took up was an impulse buy at a bank in 2013. I had gone to the bank with the intention of opening a new bank account so I could take advantage of their promotional offer of 4 free passes to Universal Studios Singapore. A Prudential agent working with the bank was sent to chat with me as I waited for my new account to be opened. One thing led to another and I ended up signing up for a second Prudential endowment plan that morning.


I've dutifully paid my premiums all these years, filed away statements I received on accumulated bonuses, and never really paid any attention to how much I could expect to receive from the plans on maturity.


As it turns out, the first plan I bought will be maturing next February. I've been paying an annual premium of S$1,722.00 since February 2000. The total premium paid after 21 years amounts to S$36,162.00. According to the Revised Benefit Illustration, I can expect to receive S$48,425.00 upon maturity in 8 months' time. This works out to be a yield of 2.818% per annum.



As for my second plan, I've been paying a monthly premium of S$606.61 since October 2013. The total premium payable after 15 years will be S$109,190.00. The Revised Benefit Illustration shows that I can expect to receive S$130,309.00 upon maturity in October 2028, making it a yield of 2.476% per annum. Of course, things could change over the next 8 years, so the maturity benefit may be different.



After purchasing these endowment plans, I never really paid any attention to them. I didn't think about the money which went towards them, nor the rewards which I could reap at the end of the tenure.


The returns from endowment plans are far from phenomenal, but I have no regrets buying them. Had I not placed the funds in an endowment plan, they would have been sitting in a bank account earning minimal interest anyway.


Endowment plans are illiquid and, depending on the tenure, one can be locked into them for a long time. Clearly, they're not for everyone, but I think they're useful for some. For instance, people who are not prudent in controlling their expenditure and who then wish to have forced savings plans, parents with a specific goal of setting aside funds for their children's education, those who're not confident of investing on their own, people who lead busy lives with no time to monitor volatile investments, etc.


For people looking to invest though, endowment plans should not form a significant part of their portfolio, as funds can be better channeled elsewhere towards higher yielding asset classes like real estate, stocks or corporate bonds.


If you're looking to diversify your portfolio by placing some funds in an endowment plan though, then before buying one, ask yourself if you're going to have to think about the money whenever it's time to pay the premium. If you have to, it means it's too much to put into an endowment plan! Ideally, only lock away spare, idling cash not earmarked for any specific purpose, so you don't have to think about it and be thrilled with these forgotten pots of gold when they eventually mature.

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