Thursday, February 15, 2007

Single premium endowment

Someone asked for my views on investing a lump sum in a single premium endowment policy. Is this a good plan?

This is how the policy works.

* The insurance company collect a single premium from you, say $10,000
* The money is invested in the life insurance fund
* A small portion of your premium is taken to buy the life insurance cover and meet the expenses (but these are relatively small)
* You will get a guaranteed return on your total savings at the end of the term, say 10, 15 or 20 years
* If the insurance fund earns more than the rate of interest used to calculate the guaranteed return, you can get an annual bonus
* the annual bonus may increase the payout on the maturity rate

The policy is usually able to give you a return of around 3% to 4% on your total investment, if you keep it to the maturity date. This comprise of the guaranteed portion and the non-guaranteed bonus. If you exclude the bonus entirely, the guaranteed return is around 2% per annum. (These figures apply to NTUC Income, and may be lower for other insurance companies).

The name of this product offered by NTUC Income is the Growth plan. It is popular. Over 100,000 people have invested in this policy in past years. You can read more about it in

Other insurance companies offer similar products (under different names) but they usually provide a lower return to the policyholder.

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