Life insurance is for those who want to protect their loved ones with financial support in the event of death or permanent disability. There are two main types of life insurance – term and whole life. However, in this article, we focus on a different form of life insurance, endowment plans.
Like whole life insurance, this type of insurance also aims to provide an insurance plus investment policy by receiving bonuses and dividends.
The crucial difference between whole life and endowment policies lies in the end goal. Whole life insurance focuses on covering death, total/permanent disability and potentially major illnesses. On the other hand, endowment policies have a similar scope of coverage but are primarily for those saving towards significant financial goals, such as your child's education fund, with a life insurance element attached. Your coverage will typically come to an end after a fixed period that coincides with your financial goals, e.g. 20 years.
Endowment life insurance may be inaccurately presented as being as safe as fixed deposits. You are not guaranteed to get back what you invested, as part of your premiums are used to pay for the policy’s insurance coverage or early surrender.
There are many types of endowment plans, so speak with a professional before deciding on the right one based on what you need. Just as with whole life insurance, endowment insurance comes in participating and non-participating forms. In addition, there are anticipated endowment plans. The difference between anticipated and regular endowment plans is that a chunk of the sum assured is paid at predefined intervals throughout the policy’s life. At maturity, the balance of the sum assured is paid with any accumulated bonuses.
Your endowment plan will likely be offered with leverage. Insurance agents working for agencies work with banks to secure leverage, though you may be able to access more if you go through a licensed bank employee to sell insurance (known as bancassurance).
Leverage is defined as using debt to top up the cash you use to purchase an asset (therefore buying more of it) with the hope that it will boost returns (hopefully more than offsetting the cost of borrowing). There is a higher potential return over the long term, albeit at a slightly higher risk as with all leveraged products. Speak to a professional to understand if this is appropriate for you.
The leverage ratio is the number of $ borrowed for every $ of cash you put up. For example, if $15,000 were borrowed for $10,000 of your own money, the leverage ratio would be 1.5x. It should go without saying that there is a risk involved in this. Suppose your returns are significantly lower than expected. In that case, you could make a net loss after you deduct interest charges over the period.
Your endowment life insurance premiums are usually fixed at the point of purchase. They should not increase as you get older. Premiums are typically higher than term products for the same amount of sum assured.
Yes, you can! As to which riders can be attached, this will vary from policy to policy.
Definition of a rider = additional benefit added to an insurance policy (usually at a cost)
ENDOWMENT PLANS. COMPLETED. ✅
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