Father and son

Endowments: Not Just for Your Children

We may think of endowments as a way of saving for our children’s education. After all, our parents did that for us. But this association is the result of a very clever marketing strategy.

In fact, endowment policies are commonly used to save for:

  • Our children’s education,
  • Other personal financial goals, and
  • Our retirement.

This is possible because endowment plans are a type of life insurance policy. As endowments are a hybrid between protection and savings, they provide pay-outs in two situations: death or total permanent disability, or when the policy reaches its maturity date.

Before buying an endowment, think of these things:

“How much do I need?” and “When do I need it by?”


Endowment plan: Protection + Savings element

An endowment plan can be broken down into two elements: A protection element and a savings element. Using the premium that you are paying, your insurer will allocate a part of it into protection. The rest of it will go into creating a savings element for you.

Protection Element: Just Like A Term Life Policy

With a term life policy, you must decide on the number of years of protection against life events. If you meet with any accident or mishap during the term of coverage, your spouse and children will receive a lump sum payment from your insurer (if it falls within the scope of protection).

Endowment policies provide protection in a similar manner. However, what typically happens is that you receive a lump sum when the policy matures. This is because of the savings element.

There’s more: the Savings (Investment) Element

Under an endowment plan, the savings element will be returned to you at the end of your term of coverage. As insurance companies invest this element in a mix of low-risk and higher-risk assets, endowment policies can promise to pay a guaranteed amount on maturity, and add on a bonus if their investments do well.

Of course, you could always go the DIY route with pure-protection “term insurance” policies, your own savings, and your own investing chops. Many people however find it more convenient to have a bundled option that can be tailored to their needs, even though this is more expensive. If your objective is to fund your child’s university education, estimate how much money is required and in how many years. $100,000 in 5 years? 13 years? Or when your children reach 20 years of age?

If you are saving towards personal financial goals with a longer timeframe e.g. retirement, look out for plans that cater for that.

If you want even more options, there are plans that allow a partial withdrawal of the cash value, can offset some of your premiums, or provide yearly payouts after the policy’s first “birthday”.

Endowments for Retirement

If you intend to use endowment policies for retirement, think about these things before buying:

  • How many years do you intend to pay your premiums?
  • What is your ideal retirement age?
  • When the policy matures, would you prefer a lump-sum payout or series of payments?
  • How much income you wish to have each month?
  • For how long do you wish to receive these monies?

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