June 19, 2024

Quick facts about endowment policies


An endowment policy is a life insurance contract (coupling term life insurance with a savings program) designed to pay a lump sum after a specific term (on its 'maturity') or on death. Minimum period for an endowment policy is 5 years. You are allowed to withdraw once during the restriction period only. After that you may withdraw at any point in time.


Endowment policies allow you to nominate a beneficiary, unlike a share portfolio that will become a part of your estate.


Tax facts:

  • The growth on your investment is taxed at a flat rate of 30% in the hands of the investment company before it is distributed to you


Compare this to:

  • Dividends are taxed at 20%
  • Capital Gains are taxed at 40% of your income tax bracket. The highest income tax bracket is 45%, which will result in CGT of 18%


Endowments thus offer tax benefits to investors with a marginal tax rate of more than 30% who are investing to receive interest income or REIT distributions. Both are taxed at your marginal tax rate, making endowments cheaper if you are in a higher income tax bracket.


Consult a financial advisor before entering into any policy. Your individual needs or circumstances will determine the right policy for you.



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