What is Endowment Insurance?

Endowment insurance is a form of insurance that combines insurance protection with a savings plan for the owner. It is designed to pay out the death benefit when the insured dies during the term of the policy or survives at the end of the term.

Unlike a Whole Life policy, an endowment policy has a fixed maturity date where the policy will end. Endowment policies typically run for 10, 15, 20, 25 years or up to a certain age limit.

As it is a form of participating insurance, the policy does accumulate value. Thus, if no claim is exercised during the term of the policy, a lump sum known as the maturity value which includes the sum assured and bonuses will be paid out at the maturity date.

Features of Endowment Insurance:

• Specified duration of cover at the beginning/inception of the policy. The policy is said to mature at the end of the term.


• Cover would cease at the end of the term. If no claim is exercised during the duration of the policy, maturity value will be paid out.


• Typically acuumulates value at a faster rate or greater amount than other policies.


• Premiums are typically higher than Whole Life or Term policies.


• Policy may lapse if premiums are not paid in time and the policy has yet to accumulate bonus values, particularly in the first few years of the policy.


• Policy may have policy loan and non-forfeiture options.

Terminology - Non-Forfeiture Options

Non-Forfeiture Options

These options are only granted with policies that accumulate cash value such as Whole Life Insurance and Endowment Insurance.

These are options which exist to prevent the lapsing or forfeiture of policies due to non-payment of premiums. Common non-forfeiture options include:

• Cash Value Option - Policy owner can receive the cash value accumulated under his/her policy if he/she chooses to surrender the policy (often subjected to a certain waiting period.)
• Reduced Paid Up Insurance - Policy owner can use cash values accumulated to purchase a single premium paid-up policy with a reduced sum assured at the rate attached to the age when this option is exercised. The paid up policy will also usually be non-participating in nature.
• Extended Term Insurance - Policy owner can use the cash value accumulated to purchase an extended term policy for a sum assured equal to that of the original policy. The length of the term is however, dependent on the cash value available as well as the owner's age as it will be based on the owner's current age. Thus, a policy with high cash value may end up with an extended coverage that would be in force for a longer period of time. This is useful for people who may be experiencing financial difficulties and have problems paying the premiums. Note that this option may not always be available to all policies.

Terminology - Policy Loan

Policy Loan

This option may be available on policies that acquire cash value. This allows owners to use the policy as a collateral for a policy loan.

It is actually an advancement of the cash value under the policy owner's policy. Thus, it will reduce the amount payable in event of a claim or if the policy owner chooses to surrender the policy. As interest is payable on the loan, the amount payable will be reduced by the amount of the policy loan plus accrued interest.

An important note about policy loans is that if the policy owner fails to pay the interest due on policy anniversary, the outstanding interest will be added to the principal and later charged at the same rate as that of the principal. If this outstanding amount exceeds the cash value of the policy, the policy will be terminated and all premiums paid will not be refunded.

It is advisable to check for exact terms and conditions with your insurer before embarking on a policy loan.

What is Term Insurance?

Term insurance is a form of insurance which provides coverage for only a specified period of time. This period of time is known as the policy term. While most policy terms can range from 5-30 years, there are policies which cover up to age 99 as well.

If the insured passes away or triggers a claim during the policy term, the sum assured will be paid. If no claim is made within the policy term, the policy will cease once the term ends and nothing will be payable to the insured upon the end of the term.

Most term insurance policies are very affordable as they serve to provide protection purposes for a specified period of time and have no cash value. Thus, they are non-participating in nature and there are no bonuses accumulated or paid out. This is the reason why people do not get money back should they decide to surrender the policy.

The upside of such a feature and its affordability also means it becomes more flexible for the insured to surrender the policy if needed as there is usually no non-forfeiture option (options to prevent the policy from lapsing such as reduced paid-up).

Term insurance can be used as a form of temporary insurance when one is looking for coverage for a period of time or facing budget issues. It is also used as a part of a form of financial strategy known as "Buy Term, Invest The Rest". This will be discussed on a later date.

Features of Term Insurance:

• Covers life of the insured for a specified period of time.
• May include coverage for total and permanent disability and critical illnesses depending on the policy.
• Non- participating and thus has no cash or surrender value.
• Affordable premium amounts. Lowest premiums compared to other forms of life insurance.
• No non-forfeiture or policy loan options.

Terminology - Participating & Non-Participating Policies

Participating Policies

Also known as With-Profit policies.

Refers to life insurance products that share in the profits or surplus of the insurance fund. Policy owners will receive bonuses from the insurer resulting in a death benefit that is greater than the basic sum assured as well as a cash value to the policy.

Non-Participating Policies

Also known as Without-Profit policies.

Refers to life insurance products that do not share in the profits of the insurer. Policy owners will not be entitled to any bonus payment from the insurer.

Terminology - Death Benefit

Death Benefit

Refers to the amount the insured receives in the event of death. The payment is usually made in one lump sum.

In the event that the policy covers total and permanent disability, the amount under death benefit may be paid to the insured in a series of payments depending on the structure of the policy.

Terminology - Cash Value

Cash Value

Also known as Cash Surrender Value or Reserve.

An estimated value which the insured will receive, before certain adjustments, if he or she chooses to surrender a policy after a period of time. This only applies to participating policies.

For example, Mr A buys a participating whole life policy with a sum assured of $100,000 with an annual premium amount of $1,500. After 10 years, he chooses to surrender the policy. He receives $10,000 in return.

Please note that all these figures are for illustrative purposes only.