An endowment insurance policy is a savings or investment plan that includes an element of life insurance cover.
The insurance policy/plan is taken out for a fixed period and normally pays out a lump sum at the end of this period, or on the untimely death of the life insured if that happens during the period of the policy.
This insurance product has historically been available on a with-profits or unit-linked basis.
The customer can pay Premiums regularly or as a one-off single payment.
Endowment assurance policies were one of the earliest forms of packaged investment. They differ from other forms of packaged investments, such as unit trusts and open-ended investment schemes, in that they provide built-in life insurance cover, which reduces the amount invested on the policyholder’s behalf. The amount goes to provide life cover to the assured and is normally referred to as risk premium
They are not usually suitable as a means of providing a significant level of life insurance cover where the policyholder’s budget is limited because the bulk of the premium is directed towards the savings element of the policy, with relatively little providing the life insurance cover. Surrender values are therefore likely zero or very low in the early years of the policy.
Endowment policies have a fixed period of years chosen by the policyholder at the start of the policy. The period can be any number of years chosen by the policyholder but most policies have terms of between 5-25 years.
The last day of the policy’s period is commonly known as the maturity date and most of the policies pay benefits on this date. For instance, if you choose a 5year term endowment policy, you maturity date will be on the 5th year and that’s when benefits will be paid.
The benefit of an endowment policy is the payment of the sum assured at the maturity date or on the untimely death of the life assured. Endowment policies are, therefore, long-term savings plans that meet the policyholder’s investment objectives whether they live to see their fulfilment or not.
The policies have a tax relief benefit of 15% of the premium payable on monthly basis up to a maximum of 5000/-. This means that anyone taking a policy enjoys a 15% tax benefit. Assuming you pay a premium of Kshs. 10,000/-, you will enjoy a Tax relief benefit of Kshs. 1,500/-. This means that your monthly contribution will be Kshs. 8,500/-.
