How a participating endowment works: the par fund, reversionary and terminal bonuses, cash bonuses, smoothing and disclosure

What is a participating endowment

A participating endowment (sometimes called a with-profits or par endowment) is a life policy whose main purpose is to build cash value. Policyholders' premiums are pooled in the insurer's participating fund (par fund), and the policy "participates", or shares, in that fund's profits under the terms of the contract. The difference from a non-participating endowment is that the latter writes its maturity benefit and cash values entirely into the contract and pays no bonuses, whereas a participating policy has two layers of benefit: the contractually guaranteed sum assured and guaranteed cash values, plus bonuses declared each year according to the fund's experience, none of which is guaranteed before declaration. In the words of MoneySense, the financial education platform of the Monetary Authority of Singapore (MAS), participating policies "participate or share in the profits of the insurance company's par fund", and bonuses "are non-guaranteed benefits until they have been declared" (MoneySense, updated 28 Sep 2026).

According to full-year 2025 figures published by the Life Insurance Association Singapore (LIA) on 11 Feb 2026, participating products accounted for 24% of weighted new business premiums, non-participating products for 32% and investment-linked policies for 44%. These shares say nothing about whether one type is better than another.

What the par fund invests in, and who manages it

The par fund is a pool of assets accounted for separately on the insurer's books. Premiums from all participating policies, whether endowments, participating whole life or participating annuities, flow into it after charges. MoneySense notes that the fund's assets "can include government and corporate bonds, equities, properties and cash", with the asset mix decided by the insurer and liable to change over time. MAS Notice 320 requires insurers to disclose in the Product Summary the fund's investment objectives and strategy, its current portfolio, and its net investment returns and total expense ratio for the past three years (MAS Notice 320, last revised 16 Nov 2020).

Take, as an example, the 2025 participating fund update published by one local insurer (Great Eastern Life, Participating Fund Update for 2025, published 2026). It is used here only to show how to read the columns, not for comparison. Related-party disclosure: the team behind this site's content represents Great Eastern Financial Advisers, which, like Great Eastern Life, belongs to the Great Eastern Holdings group; other insurers publish similar annual updates under MAS Notice 320, with broadly the same columns. As at 31 Dec 2025, its Singapore-dollar portfolio was allocated 57% to fixed income, 29% to equities, 7% to property, 6% to loans and 1% to cash; the US-dollar portfolio was 63% / 29% / 2% / 3% / 3%. When reading this table, look for three things: the fixed-income share determines how sensitive the fund is to interest rates, the equity and property shares determine where the volatility in returns comes from, and separate SGD and USD portfolios mean that bonus experience may differ between policies in different currencies.

Three kinds of bonus: reversionary, terminal and cash

Non-guaranteed benefits usually take one of three forms. They differ widely in when they are declared, whether they are added to the sum assured, and how much you receive on surrender.

(The mechanics in the table are based on MoneySense, "Participating versus non-participating policies", updated 28 Sep 2026: reversionary bonuses, "Once declared, they will form part of the guaranteed benefits of your policy"; terminal bonuses are "only calculated upon maturity, claim and/or surrender".)

In practice, reversionary bonuses are locked in but discounted if you surrender; terminal bonuses can make up a large share of the long-term illustrated benefit yet are the least certain; and the cash value inside a cash-bonus policy grows more slowly, because the bonuses have already been paid out.

How bonuses are set, and why they are smoothed

Bonuses are not simply a pass-through of the year's investment return. Both MoneySense and the LIA consumer guide explain that bonuses depend on the par fund's combined experience in three areas: investments, claims (death, disability and so on) and expenses. All bonuses must be approved by the board after considering the Appointed Actuary's recommendation (MoneySense: "The insurer's board of directors must approve all bonuses after taking into account the appointed actuary's recommendation"). In a public letter dated 24 Aug 2009, MAS further confirmed that Singapore life insurers "already use the concept of asset share" when setting bonuses. Asset share is the value of premiums paid by a group of policies, less expenses and claims, rolled up at actual investment returns. Insurers must also disclose in the Product Summary "how bonuses will be smoothed".

Smoothing is at the heart of the participating mechanism. In years of strong investment returns the insurer holds back part of the surplus, and in weak years it draws on that reserve to sustain bonuses, so that bonuses do not swing sharply with markets from one year to the next. MoneySense puts it this way: "Insurers generally try to avoid large fluctuations in the non-guaranteed bonuses from year to year". So if equities rise in a given year and your bonus is not raised in step, that is not necessarily unusual; conversely, a bonus cut after several years of poor returns is the other side of the same mechanism. To judge whether a bonus level is reasonable, look at the bonus rates for the past three years and the fund's three-, five- and ten-year averages disclosed in the Product Summary, rather than at any single year.

What protections policyholders have

Policyholders do not bear all the risk of a participating policy. Four mechanisms are worth checking one by one:

1. Cap on shareholders' share. Under the Insurance Act, when an insurer declares bonuses, shareholders may receive at most S$1 for every S$9 of bonus allocated to policyholders, as payment for managing the fund (MAS letter to the press, 13 Aug 2009). The LIA guide puts it as "limited to a maximum of 1/9th of the value of non-guaranteed bonuses allocated to participating policyholders".
2. Shareholders stand behind guaranteed benefits. The LIA guide states that "Any shortfall in the assets required to meet guaranteed benefits has to be met by shareholders": the sum assured and guaranteed cash values do not shrink because the fund makes a loss.
3. Declared bonuses cannot be clawed back. "Once the non-guaranteed bonuses have been added to your policy, the insurer cannot subsequently reduce them or take them away on claim" (same source).
4. Policy Owners' Protection Scheme (PPF). If an insurer fails, the PPF Scheme, administered by the Singapore Deposit Insurance Corporation (SDIC), covers guaranteed benefits, including bonuses that have been declared and vested, subject to caps (see capital-guaranteed savings plans). Undeclared bonuses and terminal bonuses are not covered.

These four protections apply only to the guaranteed and vested portions. Undeclared bonuses, terminal bonuses and illustrated values still depend on the fund's future experience.

What must be disclosed at the point of sale and every year

The appendices to MAS Notice 320 set out clear disclosure requirements. The Product Summary provided at the point of sale must cover the par fund's investment objectives and strategy, its current asset mix, net investment returns for the past three years together with three-, five- and ten-year averages, the total expense ratio (TER) for the past three years, how risks are shared among policyholders, the smoothing approach, the plan's bonus rates for the past three years, and the types of charges, stating that they are already allowed for in the premium (Appendix B). After purchase, the insurer must send policyholders an Annual Bonus Update every year (Appendix C); MoneySense likewise notes that "After buying a par policy, you'll receive an Annual Bonus Update".

The two illustration rates used in the benefit illustration are also governed by LIA rules; for the caps and what they mean, see where the costs of savings insurance sit.

How to read an annual participating fund update

An annual update usually runs from one page to a few. The core columns and how to read them are as follows (column names vary by insurer):

Returning to the same published 2025 update: the Singapore-dollar portfolio's net investment return averaged 4.33% over ten years, 2.47% over five years and 6.47% over three years; year by year it was 6.37% in 2023, 4.26% in 2024 and 8.83% in 2025. The total expense ratio (excluding the US-dollar portfolio) averaged 1.55% over ten years and was 1.13% in 2025; the document defines the total expense ratio as including investment, management, distribution, tax and other expenses (Great Eastern Life, Participating Fund Update for 2025). The five-year average and a single year can differ by several percentage points, which is exactly why you should look at averages rather than individual years. These figures are one insurer's historical experience; past performance is not indicative of future results, and they are not an assessment of any product.

How it differs from non-participating endowments and ILPs

In short, a participating endowment hands investment decisions to the insurer, volatility to the smoothing mechanism and the guarantee to shareholders' capital, at the price of less transparency than an ILP and less flexibility than a deposit. Whether it suits you depends on how you answer two questions: is the guaranteed layer enough, and could you accept the non-guaranteed layer turning out to be zero? For help with that judgement, see capital-guaranteed savings plans and surrender and liquidity. If you would like this applied to your own situation, you can register your needs through the contact options on this site.