A) Non- participating Endowment Plan with Guaranteed Return 

This type of endowment plan does not participate in the performance of the Insurer’s Participating Fund.

As these plans have almost no ‘investment risk’, the return is therefore capped at the guaranteed rate.

It’s usually Capital Guaranteed upon maturity, and the Surrender Value is usually lower than the premium paid before maturity.

You can compare guaranteed Yield at maturity with the returns of Singapore Savings Bonds and Singapore Government Securities. You may refer to https://www.mas.gov.sg/bonds-and-bills for more information on the returns of Singapore Savings Bonds and Singapore Government Securities.

B) Participating Endowment Plan with Guaranteed + Non-Guaranteed Return

This type of endowment plan participates in the performance of the Insurer’s Participating Fund in the form of bonuses that are not guaranteed. By purchasing a participating plan, your premiums will be pooled together and invested with premiums from other policyholders in the Participating Fund.

Guaranteed Return: The minimum amount the policyholder will get regardless of market performance.

Non-Guaranteed Return: The performance of the Participating Fund affects the non-guaranteed bonuses or dividends paid to you. As a policyholder, you will share in the risks of the Participating Fund, including:

• Investment Risks: Lower than expected investment returns earned by the fund
• Insurance Risks: Higher than expected claims made by policyholders
• Expense Risks: Higher than expected expenses incurred for managing the Participating Fund

There are usually 2 types of bonuses: reversionary bonuses and terminal bonuses. As mentioned, these bonuses depend on the investment return on the Insurer’s Participating Fund.

Reversionary bonus will usually be declared annually. Once any reversionary bonus is declared, it will be added to the policy at the policy anniversary and becomes guaranteed.

Terminal bonus is an additional bonus which may be payable on the death of the life assured or maturity of the policy.

In short, these policies are actually designed to have upside from the guaranteed return for the investment risk the policy owner takes in the Insurer’s Participating Fund.

Insurers generally try to avoid large fluctuations in the non-guaranteed bonuses from year to year by smoothing bonuses over time

The projected investment returns earned by an insurer’s participating fund does not equate to the actual return that you will be getting from your endowment policy. The 2 columns of “non-guaranteed return illustrated at 3.00% & 4.25% investment return” means, if the Insurer’s Participating Fund is making an investment return of 3.00% or 4.25% respectively, your policy would get that illustrated amount of bonus allocation respectively.  The projected return of the policy is illustrated as the yield to maturity in the policy’s Benefit Illustration or Quotation.

In conclusion, when evaluating a Participating Endowment Policy return, you have to consider:

1) Policy Competitiveness: is the policy providing competitive illustrated guaranteed + non-guaranteed return rates compare to other similar policies or other similar risk investment products.

2) Insurer’s Participating Fund investment return track record: every insurer announces Par Fund investment return every year, the official data is available on MAS website: Par Fund Return.

3) Insurer’s bonus allocation track record: “Insurers that are doing well may not be generous with the bonus as distribution policies are not transparent, said a veteran. So even if some insurers are not frequently in the top quartile, they could be doing better with their bonuses.”

Please also always remember: historical performance may not be indicative of future performance.

And, note that Surrender value can be lower than the premium paid before maturity. It’s important to check the policy’s Benefit Illustration or Quotation on ‘break-even’ period whereby Surrender Value is equivalent to Premium Paid.

The guaranteed return in a participating policy tends to be lower than that of a non-participating policy. You’ll need to determine your risk appetite to see if you are comfortable with the investment risk involved in Participating Policies for a potentially higher return.