An endowment policy entails the buying of any investment product from a life insurance company. These products are set up just like regular savings plans. At the end of the set period, the payment is done in lump sums. The major benefit of this policy is that it includes life assurance. In the instance that you die during the term, the payout will still be made.
This policy is advantageous when you want to save for a particular long-term goal mainly over ten years. This policy plan also will give you a non-guaranteed lump sum at the end of your investment term. However, before you commit to this policy, make sure that you are aware that the value of your investment may become volatile. It may rise hence you receive more than you invested, or it may go down thus lump sum payout will be less than your investment.
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[testimonial name=”Cian Murphy” avatar=”male” image=”” company=”Fetch.ie” link=”” target=”_self”]Always seek professional financial advice to be able to understand the endowment policy fully. You may use this policy to save for a specific goal, for an interest-only mortgage and general investment. When you enroll to buy this policy, you are required to make the standard set payments. According to your age and gender, part of your payment is used to buy life assurance. The other part of the payment that remains is invested on a unit-linked basis or a with-profits basis.[/testimonial]
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In the with-profits basis, the insurance company will pool your money with that of other investors. The company then invests the money in an array of investments and profits gained will be shared amongst the investors. These profits are shared through the declaration of bonuses by the insurance provider. In the unit-linked basis, you are the sole decision maker in the matters of investment. You decide on the investment funds that you want your money to be invested.
What are the advantages of an endowment policy?
These endowment policies are advantageous because they guarantee a payback of a certain minimum amount with condition that they help up to the end of the term or death occurs. The with-profits basis is more beneficial than the unit-linked basis. The with-profits basis grows steadily as more bonuses are added. The unit-linked basis may result in less money during payouts because you might make decisions that are non-informed resulting in losses.
You should also be aware that before the set policy term is over, you cannot easily access your money. In case you decide to end your policy early, you will be charged high penalties added to high policy termination costs. When you enroll with an endowment policy, an administration fee is deducted from each payment you deposit with the insurance company. Also, if you choose a with-profits basis, a variety of charges and costs are deducted prior to the working out of bonuses.
When you invest in an endowment policy, your money is safe unless the insurance company becomes bankrupt.