by thetrust on May 09, 2010
An endowment policy being a long-term savings plan, typically between 15 and 30 years is use for life assurance, such that it can pay back a mortgage upon the death of the policy holder.
There are two investment option of the endowment policy the holder may enjoy, which are:
The “with profits” endowment investment is the percentage of the amount of steady growth by the with-profit funding having accumulated over the years. A statement is given to the policy holder annually specifying the investment situation where no annual bonus is added. The insurance company pays what is known as “reversionary” bonus to the endowment policy holder.
a Unit-linked endowment investment is The type of endowment investment plan policies which provide no guarantees as to what growth is to be or will be achieved. The endowment policy holder has the option of changing funds to consider which is beneficial to him from the several investment opportunities abound in the money market.
Endowments investments offer tax efficiency on savings planned for its holder to enable good earnings in the long run. In order for the policy to pay out free of all personal taxes a set of Inland Revenue rules need to be adhered to. These state that the amount paid out on death needs to be a minimum of 75% of the premiums paid during the term of the endowment policy procedures.
In considering a shortfall of your endowment policy on maturity the shorter the time period the policy is taken, the greater the potential for a shortfall in the final payout at maturity. In most cases, on getting 20 to 30 years endowments in the earlier years should be able pay off a mortgage on maturity. This could be as a result of saved money gained in higher rates of interest in the money market.
The endowment premiums are basically calculated using the specified growth rates, the age and gender of the life assured(s) (to allow for the cost of the life assurance) and the term of the policy Projections are made based on a 7.5% mid-range growth rate. The projection rates are usually set by the regulators to reflect how the economy is doing and how it is expected to do in the future. Stock market inflation and prevailing interest rates are much lower now than they were in the last two decades, so reducing the projected rates for new and intending endowment policy holders becomes necessary
a terminal bonus is paid to the policy holder at the time of maturity of the policy, When you take out a “with profits” or unit-linked endowment, the insurance company usually gives out a written documents/statements on the cost of the policy on maturity. This is ascertaining upon the original amount invested and a payment in the future multiplied by a yearly projected growth rate.
From Gomestic published on May 09, 2010
