List and explain three types of endowment policy.
Explanation
*Full endowments are with-profit endowments that the sum assured is equal to the death benefit at the start of the policy. The final payout would be much higher than the sum assured if there is growth.
*Low-cost endowment policies are designed so the estimated future growth rate will meet the target amount and pay a minimum death benefit. These are commonly used to help repay mortgage loans. It is made up of a decreasing term insurance and an investment element. It is referred to as low cost because the sum and the monthly premiums are lower than that of a without-profit or traditional with-profits endowment.
*Unit-linked insurance plans (ULIPs) are technically types of endowment plans, even though ‘endowment plan’ more commonly refers to the plans we just looked at earlier. ULIP policy premiums are used to invest in units of the policyholder’s choice, then these units are used to cover the cost of the policy at maturity. There isn’t a fixed amount agreed upon for this type of policy. The value at maturity depends upon the performance of the units.