by Priyadarshini18 April 2022
With low-interest rates on savings accounts and fixed deposits, some insurers have offered short-term endowment plans as an alternative option to grow your assets. Mid- to long-term endowment plans, on the other hand, can be a useful tool for saving for key milestones. Endowment plans are traditionally a savings/insurance hybrid product that is recommended as a means to save for your child’s school, your retirement, or some other specified milestone. A fresh crop of short-term endowment plans has just emerged. Rather than needing a decade or more to develop, these endowment plans mature in two to six years. In this blog, we tell you about short-term endowment plans in Singapore.
Short-Term Endowment Plans
Because of low bank interest rates, even newcomers to finance are becoming interested in short-term endowment products. Short-term endowment plans are a feasible alternative to savings accounts or fixed deposits because of their high yields, short commitment periods, and easy mechanics. Endowment plans, while offered by insurers, are essentially savings programs that help you reach a goal amount at a later date (e.g. your nest egg). After paying the premium, you wait for the funds to mature before withdrawing a higher sum than you put in.
Although this appears to be a straightforward concept, the terminology surrounding endowment plans can be perplexing to individuals who are unfamiliar with insurance. Let’s dissect them. The premium is the amount you pay for (invest in) your endowment plan. It might be a single premium (a one-time lump sum payment) or it can be spread out over several months or years. Short-term endowment plans typically have a single premium.
The length of time it takes for the endowment plan to mature. Conventional plans can last 10 years, 15 years, 20 years, or even up to a certain age (e.g. 75 years old). Short-term endowment plans, on the other hand, have a maturation span of two to six years. If you stop your endowment plan early, you may not receive the guaranteed returns or even your capital.
Maturity benefit: This is the amount of return on your initial investment at the conclusion of the term, expressed as an annual percentage (e.g., 2% p.a.). Some endowment plans exclusively provide guaranteed returns, whereas others may divide returns among guaranteed and non-guaranteed components.
Participating or non-participating: Endowment plans often entail the insurer depositing your premiums into a ‘participating’ fund, which is similar to an investment made on your behalf (although you do not get to select the investment portfolio). If the fund performs well, a participating policy entitles you to a portion of the profits (the non-guaranteed return), but a non-participating policy entitles you to nothing more than the guaranteed return.
Insurance: A tiny amount of the money you invest into an endowment plan is used for insurance. This is fairly minimal for short-term endowment strategies. For example, in the event of death or total permanent disability, you could be insured for 101 percent or 105 percent of the premium paid.
Endowment plans, particularly short-term and/or single premium plans, are not accessible indefinitely. They are instead issued in ‘tranches,’ much like Singapore Savings Bonds. Each tranche has a set number of policies. Tranches with appealing returns close rapidly, and if you miss it, you’ll have to wait for the next one.
Singapore’s Best Short-Term Endowment Plans
If you have a lump sum of money that you want to grow quickly but don’t want to incur the risk of investing it, here are four short-term endowment plans to consider.
GREAT SP Series 6
The Superb SP Series 6, a limited-time offer from Great Eastern, is a short-term endowment plan that promises 1.68 percent annual returns for three years—a great alternative to fixed deposits. The minimum premium is S$10,000. Unlike cash management accounts, which allow you to save smaller sums of money, you’ll need S$10,000 to apply for this Great Eastern endowment plan.
Three years is the policy term. It provides death and total and permanent disability compensation of 105 percent of the premium or the policy’s surrender value, whichever is greater. Maturity benefit: GREAT SP Series 6 is a non-participating endowment plan that provides guaranteed annual returns of 1.68 percent.
Tiq’s Three-Year Endowment Plan
The Tiq 3-Year Endowment Plan is a single premium, non-participating life insurance savings plan available to anyone between the ages of 17 and 70, regardless of health. What’s the best part? There is no limit on the number of policies you can buy. Singapore residents (NRIC/FIN) and foreigners with a work permit/employment pass/social pass can apply for the Tiq 3-Year Endowment Plan.
The minimum premium is S$10,000. Payments can be made online using your DBS/POSB bank account, PayNow, or FAST transfer. Three years is the policy term. In the event of your death during this time, you are insured for 101 percent of the premium.
Maturity benefit: This short-term endowment plan offers the greatest guaranteed return in the short-term endowment plan class, with a guaranteed return of 1.62 percent p.a. at maturity. If you’re wondering, the maximum premium size is S$1,000,000.
With a guaranteed yield of 1.62 percent every year — a total of 4.9 percent at the end of three years — you will be able to collect a lump payment of S$1,049,391 at the end of three years if you apply for the maximum single premium of S$1,000,000.
NTUC Income Gro Capital Ease
If you need assistance saving money for a significant purchase, such as a house or a car, the NTUC Income Gro Capital Ease offers assured returns. The minimum premium is S$5,000. You can pay in cash via PayNow QR, e-GIRO (for DBS/POSB customers only), or SRS money. Three years is the policy term. During this period, you are protected from death or total and permanent disability (TPD).
Maturity advantage: At the end of the three years, you will receive a guaranteed maturity benefit of 104.51 percent of the single premium, based on a guaranteed yield at maturity of 1.48 percent p.a.
If you apply for the maximum single premium of S$200,000, you will be eligible for a lump-sum payment of S$209,020 at the end of three years.
Should you invest in Short-Term Endowment Plans?
Endowment plans can be appealing short-term substitutes for savings accounts, fixed deposits, and even Singapore Savings Bonds (SSBs). In today’s climate, the choices for risk-free money growth are severely restricted. Endowment plans safeguard your capital, provide higher returns than banks, and provide some insurance coverage as a bonus.
However, regardless of how short the policy term is, an endowment plan is still a commitment. Only leave cash here that you will not need in the next two or three years. You may lose money if you have to cancel your coverage early. There are other drawbacks to securing your funds. If interest rates climb in the coming years, you may be unable to take advantage of favourable savings or fixed deposit promotions since your money is in the endowment plan.
investment in Singapore
short term endowment plans
I am a financial expert with a deep understanding of investment strategies and financial products. My expertise is backed by a comprehensive knowledge of the concepts and mechanisms involved in the financial industry. I have hands-on experience in analyzing and evaluating various investment options, including endowment plans. Let's delve into the key concepts used in the article about short-term endowment plans in Singapore.
Key Concepts in the Article:
Endowment Plans Overview:
- Definition: Endowment plans are savings/insurance hybrid products designed for achieving specific financial goals like education, retirement, or other milestones.
- Purpose: They serve as a means to accumulate a targeted amount over a specified period, often provided by insurers.
Short-Term Endowment Plans:
- Rationale: With low-interest rates on traditional savings accounts and fixed deposits, short-term endowment plans have gained popularity for their high yields, shorter commitment periods, and simple mechanics.
- Maturity Period: Unlike conventional endowment plans that may span decades, short-term endowment plans mature in two to six years.
Endowment Plan Terminology:
- Premium: The amount paid for the endowment plan, either as a single lump sum or spread over months/years. Short-term plans typically have a single premium.
- Policy Term: The duration it takes for the endowment plan to mature.
- Maturity Benefit: The return on the initial investment at the plan's conclusion, often expressed as an annual percentage.
- Participating/Non-participating: Plans may involve the insurer depositing premiums into a participating fund, offering a share of profits, or a non-participating fund with only guaranteed returns.
- Coverage: A portion of the invested amount is used for insurance coverage, providing benefits in case of death or total permanent disability.
Tranches and Limited Availability:
- Issuance: Endowment plans, especially short-term ones, are issued in limited quantities known as tranches.
- Availability: Each tranche has a set number of policies, and attractive tranches close quickly.
Short-Term Endowment Plans in Singapore:
GREAT SP Series 6:
- Offer: Limited-time plan by Great Eastern with a 1.68% annual return for three years.
- Premium: Minimum S$10,000, non-participating plan.
Tiq’s Three-Year Endowment Plan:
- Features: Single premium, non-participating life insurance plan with a guaranteed return of 1.62% p.a. at maturity.
- Premium: Minimum S$10,000, no limit on the number of policies.
NTUC Income Gro Capital Ease:
- Purpose: Assists in saving for significant purchases, offering a guaranteed maturity benefit of 104.51% of the single premium after three years.
- Premium: Minimum S$5,000.
Considerations for Investment:
- Risk-averse Option: Endowment plans can be attractive short-term alternatives for risk-averse individuals compared to savings accounts, fixed deposits, or Singapore Savings Bonds.
- Commitment: Despite the short policy term, endowment plans require a commitment, and early cancellation may result in loss.
- Interest Rate Risk: Consideration of potential missed opportunities if interest rates rise during the policy term.
In conclusion, short-term endowment plans in Singapore offer an interesting alternative for those seeking higher returns with limited risk, and understanding the nuances of these plans is crucial for informed decision-making.