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Understanding endowment assurance

At its most basic, an endowment is a kind of life policy that pays out the sum assured either on a fixed date (typically anything from 10 to 20 years) or upon the death of the person insured, whichever happens first.

An endowment is therefore best viewed as a combination of life assurance and savings hitting the proverbial two birds with one stone. This is also one of the reasons why this kind of policy is very popular – the assured person is able to reap the reward of his or her savings as opposed to a pure life policy that only pays out in the event of that person’s death.

There are a few different types of endowment policies to be aware of – limited premium, pure, and double.

As the name suggests, the limited premium sees the policy holder only paying for a certain amount of time and not the entire term of the policy. In other words, for a 30-year policy, the member could pay for the first 15 years and will receive benefits for the next 15, unless a death claim is initiated before the end of the term.

Pure endowment is the most straightforward option as it pays out on the death of the insured or when the policy reaches maturity.

The double endowment assurance combines the best of the limited premium and pure endowment policies. Under this policy, the amount assured is double if the person survives the term. For example, if the policy pays out R 100,000 on the death of a person, that amount will double to R 200,000 if the person is alive when the policy reaches maturity. This kind of assurance is often sold to people with a higher life risk than others.

Endowment policies are great for people with a regular income and who need a lump sum after a specific period of time. These policies provide a disciplined plan for savings and is a great way to provide long-term financial security. They are also beneficial if you have to save for a specific life event such as paying for your children’s university fees or even as a give to your grandchildren.

Irrespective, it is always advisable to speak to a qualified financial advisor to discuss your specific needs and what policy will meet your budget.

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