Investing in an endowment policy

(Shutterstock)
(Shutterstock)

A Fin24 user wants to know more about investing in an endowment policy. He writes:

How long can I invest in an endowment policy? How big a lump sum can I invest and what is the interest rate?

Marlise Kotze, a financial consultant at Alexander Forbes financial services, responds:

The minimum term for an endowment investment product is five years. There is no maximum term.

Typically, you would enter this product with the aim of not having access to your money for at least five years.

Endowment policies are effected in the name of the underlying insurance company involved. Therefore, any growth within the product will be taxed in the name of the underlying insurance company.

Currently that insurance company tax rate is 30%.

READ: All about endowments
            
Conclusion

An endowment policy is suitable for an individual with a marginal tax rate of more than 30%.

The minimum lump sum amount required is R30 000, or alternatively you can set up a debit order for R500 per month.

The interest rate or growth rate depends entirely on the underlying investment fund chosen. There are many choices available and it would depend on the individual's circumstances.

We recommend that you exercise this choice with the assistance of your financial planner.

READ: Endowments and fund transfers abroad
 
Examples:

- A 100% cash investment fund is expected to yield 5.5% per year;

- A balanced investment fund can give up to 8% per year, but with added risks involved.

ALSO READ: Choosing between unit trusts and endowments

- Fin24

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

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