Buy endowment policies only if you intend to keep your plan until maturity as you are likely to lose part of your initial investment amount if you surrender your plan within the first few years.

This is because most endowments are 'participating' or 'with profits' policies. This means that part of your premiums buys insurance cover, while the rest goes into a common pool called the par fund, which is invested by the insurer.

Mr Stanley Jeremiah, council member of the Singapore Insurance Institute, said that in the first and second policy year, most of the premiums are used to fund the sales cost such as commissions.

This is why most participating policies have no cash value in the first two years, so you get nothing or little back. It usually takes 10 to 14 years to break even, he said.

In the case of AXA's TargetSaver and GoldenSaver, a higher portion of the premiums is allocated to pay costs, and only 20 per cent and 30 per cent are allocated for investments in the first and second year respectively, said Mr Patrick Lim of PromiseLand.

It also means that if you surrender your policy during this period, you may get much less than the total premiums paid, if any.

For HSBC's Guaranteed Saver Plus, the risk is lower. If you surrender in the first year, you get 90 per cent of your premium back.

This article was first published in The Straits Times on February 01, 2009.