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How Are Endowment Plans Useful For Planning Child's Education?

Published On Jan 04, 2022

Endowment insurance is a type of insurance that protects a person for a set amount of time. The individual can assure for as long as he wants in this manner. In the event of the individual applicant's death, the assured sum, as well as the premiums paid by the insurance firm for the years the policy was in force, will be paid to him or her. The sum assured and the premium for the length of the contract are paid to the assured when the contract expires. Profit and charity plans are two types of estate life insurance.

Risk insurance plans, often known as charitable foundation plans, provide a sum covered to the nominee in the case of the assured's death. If the benefit plans are paid, the assured receives the assured amount as well as the premium for the life of the contract. The nominee receives the money covered in the event of the assured's death.

How Are Endowment Plans Useful For Planning Child's Education?

Below are a few features of Endowment plans that you must know about which help in planning a child’s education:

1. Tax Benefits

Endowments are a tax-efficient choice for those who want to save more than the maximum yearly limit for tax-free savings accounts or who have used up all of their annual tax allowances, such as tax-free interest income.

Because of the recent increase in the CGT inclusion rate, it is now possible to:

  • Individuals in the highest tax bracket face an effective tax rate of 18 percent on capital gains, while trusts face a rate of 36 percent.
  • For certain persons and trusts, the effective CGT rate for endowment insurance is merely 12%.

2. The Benefits Of Staying Invested In An Endowment After It Matures

You can withdraw the cash in a lump sum or on a regular basis when the maturity date has passed. These cashouts will be tax-free as well.

Insolvency protection — for five years following the policy's maturity or termination, the entire value of the insurance will be protected against creditors.

3. The Projected Rate Of Return

According to the Monetary Authority of Singapore, the Benefit Illustration of Endowment Policy is commonly anticipated at 3.25 percent to 4.75 percent (MAS). It's a metric used to assess how much an Endowment policyholder will get if the funds backing the policy earn a specified rate of return.

4. Important Endowment Life Terms

Surrender value — Before a policy reaches maturity, a policyholder can surrender it and get its surrender value (based on how much has been paid in and how long the policy has been going).

The guaranteed payoff at the contract's maturity is known as the sum assured.

Regular Bonuses - Bonuses that are handed out on a regular basis based on the performance of investments.

Terminal Bonus - A bonus paid at maturity based on investment performance.

5. Endowment Life Insurance And Its Tax Implications

The majority of types of life insurance are tax-deferred. In a tax-advantaged savings account, your money grows tax-free over time. Death benefits are tax-free with both term and whole life insurance. In response to endowment life insurance policies being used as tax shelters, the Tax Reform Act of 1984 mandated that any life insurance policy issued after 2005 that endows or pays the death benefit to the owner before the age of 95 must pay taxes on the death benefit and the cash accumulation fund.


By definition, an endowment is a long-term investment instrument, with a five-year minimum maturity period. In the event of an emergency, some money can be used prior to the five-year period, but there are some limits. It is possible to withdraw contributions plus 5% compound interest, however, withdrawal options are limited. The benefit of a unit trust is that you have unrestricted access to your money.

Also read - Best Endowment Policy In India To Buy In 2022

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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