Conventional life insurance typically only pays out when a person named in the policy dies. But with certain types of life insurance – sometimes called endowment policies – money is paid out on a specific date, even if the policyholder is still alive. An endowment policy can therefore be a form of savings for the policyholder as well as a safety net for dependants.
“Only 19% have invested”
Insurance products with a savings component, such as endowment policies, are well known in many countries. In some countries, such as Belgium, many life insurance policies include endowment features as part of standard assurance-vie or levensverzekering products.
The ING International Survey on Savings 2016 asked nearly 15,000 people in 15 countries about different investment products and their own choices. Across Europe, 78% of men and 71% of women said they knew about this type of policy. Only 19% indicated they had actually invested in such a product. Of those who had not, 42% said they just didn’t have enough money.
Mix and match
In an endowment policy, some of the money paid to the insurer may be invested in various ways (such as shares, bonds or property), giving a chance of higher returns. The insurer may pay a bonus to the policyholder if this happens. Of course, when investing it is always possible to lose money as well.
Although it may cost less to keep investment and life insurance separate, an endowment policy can help simplify arrangements, killing two birds – insurance and saving goals – with one stone.
Covering all angles
There are many variations on endowment insurance – for example, premiums may be calculated differently. Sometimes, smaller payments are required at the start of a term, increasing over time. Bonuses based on investment returns may also be worked out differently by providers.
Endowment insurance has occasionally been combined with an interest-only house mortgage . This was popular in the UK some years ago. The idea is that the savings eventually enable the policyholder to pay back a loan on their home. Some offer a choice of investment funds – these are called “unit-linked”. Certain policies may pay out if a policyholder becomes seriously ill.
As ever, it can make sense to compare fees, taxes, terms and conditions with other products before signing on the dotted line. Endowment policies can be more popular when places have favourable tax regimes, such as France. But as this eZonomics video states, all life insurance should be chosen to suit your individual needs and circumstances. If unsure, it might be wise to talk to a financial advisor.