7 Types of Endowment Policies to Invest In

Endowment policies are an excellent way to diversify your investment portfolio, especially if you’re younger and don’t yet have other sources of income like an established business or a pension.

An endowment policy, also known as an endowment contract, is essentially a life insurance policy with built-in investment features that allow it to grow and compound over time to use the accumulated funds later in life, such as when you retire or if something happens to you. But before you invest in an endowment policy, consider these seven types of endowment policies to invest in.

1) Ordinary Life Insurance

Some policies don’t need any investment at all. These policies, called Ordinary Life or whole life policies, are solely about your protection against death or disability and won’t appreciate as an investment policy will. They can serve as a supplement to another investment policy or as a standalone source of life insurance.

Whether you choose ordinary life insurance comes down to two main considerations:

(1) affordability and (2) risk tolerance. If you have no money set aside for emergencies, buying a premium-only policy is more affordable if you need it than simply paying out-of-pocket for an emergency health care bill.

2) Whole Life Insurance

Children’s whole life insurance protects your child for as long as they live. You can choose a permanent policy that will cover your child from birth to age 18, or you can get term insurance, which covers them for a specific number of years until they turn 18.

Unlike other policies, whole life insurance lets you borrow against it, and if you don’t need that money while your child is young, you can let it grow tax-free. For example, if your son was born in 2008 and you invest $10,000 in his policy each year until he turns 5 (for five years), at age 5, he would have $50,000 in cash value.

3) Children’s whole life insurance

Saving for your child’s future is a smart investment, and when you buy a whole life insurance policy for your child, you have plenty of time to grow assets and reap big rewards down the road. While it’s important not to focus on rate alone, an attractive rate paired with other great features will put you in a better position to succeed.

Ideally, look for a whole life insurance policy with low cost-of-insurance (COI) charges. The costs associated with owning a whole life insurance policy can take away from earnings growth. When COI charges are high, they can take up large portions of dividends or bonuses, leaving little in return.

4) Universal Life Insurance

To begin with, I would like to tell you what a life insurance policy is and how it works. A life insurance policy is a contract between you and an insurance company in which they agree to pay a designated amount in case of your death. The amount specified in your policy can vary depending on multiple factors such as age, health status, family situation etc.

There are several types of policies available such as whole life, term policies, convertible term etc. but let’s stick with universal life insurance. I will tell you about Universal Life Insurance, or ULI for short. John D Rockefeller and Benjamin Franklin popularized Universal Life Insurance.

5) Fixed Term Insurance

Fixed-term insurance is a policy that will cover you for a specified period, normally 10, 20 or 30 years. If you choose a 30-year plan, likely, you won’t want life insurance in your seventies and eighties. On top of that, many people like having income every month rather than once every year. With fixed-term policies, you pay a monthly fee for as long as you are paying it; on top of which, there is usually an up-front payment – called ‘premium’ – which will depend on age and amount for protection.

The longer you stay with your insurer, the cheaper your premiums will become. It is important to note that if something happens to you during those thirty years (for example, illness), all future payments stop until you recover. This might mean that your family has no money coming in if they were relying on it while grieving.

Also, if you die within those thirty years, then any money paid into them by way of premium will not go towards funeral costs or anything else but instead goes back to whoever sold them to you (the company). The other problem with these plans is what happens when they run out?

6) Unit Linked Policies

Often, unit-linked policies will be sold as an alternative to endowments. However, there are several significant differences between them. Unit-linked policies do not guarantee a return at all; in fact, they may suffer negative growth years. They also have an added tax liability that endowments do not incur.

The real benefit of unit-linked policies is their ability to grow with inflation. However, if you are looking for guaranteed returns on your investment, it’s probably best to avoid these products and stick with traditional endowments instead.
When purchasing a unit-linked policy, you must choose how much risk you are willing to take.

You can select from conservative or aggressive funds depending on your risk appetite. Conservative funds (which invest mainly in bonds) carry lower interest rates than aggressive funds (mainly in stocks). This low-interest rate makes them safer but less likely to grow over time.

7) Bank Deposit Bonds

Deposits may not seem like a safe investment, but they can be. As long as you know where your money is being kept and trust that institution to look after it, you can use bank deposits as an investment in endowments. Keep in mind that while these accounts are protected by FDIC insurance, your interest rates may be lower than other investments if you don’t reach higher account balances.

You might also want to check out CDs (certificates of deposit), which can offer higher rates if you leave your money untouched for a set period. However, there is always some risk involved with banking institutions; even FDIC-insured funds could be at risk in case of bank failure or technical failure by the bank.

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