Endowment plans: watch the caveats

INSURANCE policies are a mainstay of Singaporeans' savings and protection plans. For those who count on traditional with-profits policies for savings, the plans generally outperform a number of low-risk alternatives, such as deposit rates.

But there are a number of caveats that you should be aware of. The big question is whether you could do better investing in a diversified portfolio on your own.

Here are some things to keep in mind if you are considering an insurance savings plan. One is that you need to be very clear on your objectives to ensure that the instrument fits your purpose. If you aim for savings through an insurance participating or with-profits policy, then an endowment is likely more appropriate than a whole life plan. The use of whole life policies for savings is inefficient, costly and threatens to leave you with neither enough savings nor enough protection for the premiums you pay.