An endowment is a fiscal pool in which capital is preserved and yields are funnelled back and/or used for a variety of causes, depending on the endowment’s purpose. In Malaysia, the most common endowment is an insurance investment plan, also known as a savings plan in layman’s terms. The function works similarly in that you invest a set amount of capital over a number of years and receive scheduled returns until the maturity date, at which point you receive a lump sum that is typically greater than your principal amount.
What are the pros?
- A safe, low-risk investment in which the majority of the earnings are part of the contract guaranteed.
- Good endowments can outperform other low-risk investments such as fixed deposits.
- If the earnings are invested back with compounding rather than withdrawn, good endowments provide good yields.
- Leeway with your investment amount, which does not have to be a lump sum but can be spread out over a number of years OR placed all at once.
- Those looking for a primarily automated/systematic way to save/invest at a higher rate of return will find this useful.
- Tax advantages because life insurance qualifies for a tax deduction
What are the cons?
- A long maturity duration to get the full endowment returns, which is usually 20/25 years or until you reach the age of 70. Some endowments are “shorter,” lasting 5/10/15 years.
- Most endowments take a loss in the first ten years if they are terminated prematurely.
- You have no power over what the endowment decides to invest in because you do not manage it directly.
- Some endowment plans provide low returns or over-promise and under-deliver.
- Be wary of overpromising or unauthorised returns illustrations that are not provided by the insurer.
How to invest?
While it is recommended to keep insurance separate from investments in most cases, endowments can be taken into account in some cases.
- Endowments should only be used to boost your asset allocation in lower-risk investments, and even then only as a small portion of your overall portfolio.
- Because the world of investments is wide, know why you’re making the endowment investment.
- Good goals include saving for retirement, setting aside a set amount each year for travel/holidays, and paying off your long-term property loan.
- Your primary goal for the endowment would be to maximise returns while incurring as little cost as possible (basic sum assured).
- Confirm your endowment’s real rate of return in percentage terms. Endowment returns are typically stated as a percentage of the basic sum assured, and this is not your rate of return.
Are you looking for endowment life insurance policy Malaysia? If you think that it is the right investment, then you should definitely go for it. As is always the case with insurance, do your research and choose the company that best fits your needs. Above all, if a policy seems too good to be true, then it most probably is and you should stay away from it.