Everybody likes ‘two for the price of one’ specials, right? Well, that’s exactly what an endowment plan is. On the one hand it is a life insurance policy that will pay your beneficiaries in the event of your death, while on the other hand it is an investment product, designed to pay out once it has reached full term, which is generally in either five, ten, fifteen or twenty years, as long as you do not claim prior to the policy reaching maturity.

How does it work?

Based on the size of the monthly contributions that you are willing to make, you are guaranteed to receive a set amount – called an endowment – once your policy matures. Should worse come to worst and you die, the policy pays out that set amount to your beneficiaries to be used in whichever way they see fit.

Either way the set amount is paid out, which is why it is seen as an investment – and one with minimum risk at that.

What we like about endowment plans:

  • It’s risk-free with a pre-agreed upon guaranteed return
  • It forces you to save
  • It’s two products for the price of one
  • No medical check-up is required before you can sign up

Endowment plans are designed in such a way that they promise a completely risk-free guaranteed return as long as you keep to your end of the bargain and continuously pay your monthly contributions.

What we don’t like about endowment plans:

  • It only provides life insurance cover for the duration of the endowment term
  • The shorter the endowment term, the higher the monthly premiums

It’s helpful to remember:

  • If your main aim is to invest money, it is definitely worth your while to compare this product with other investment options. While endowment plans offer guaranteed returns, they also generally don’t offer the best interest rates.
  • Be sure to pay attention to the tax on your payment. Again, depending on your goals and appetite for risk, you may prefer a product that is more risky, but may also yield higher returns that are less taxable.

Doing a little bit of homework goes a long way when it comes to finding wise ways to invest or save your money.  Be sure to have a look at the other articles in our investment series to help you gain a better idea of all the options, their pros and cons.