7 March 2019
With an endowment, the life insurance company pays income tax on your behalf at 30%. In addition to easing your administrative burden, this could be a tax-efficient option for you, if your marginal tax rate is higher than 30% and you've used your tax exemptions or maximised your contributions to a tax-free savings account. Furthermore, once your endowment has matured, the proceeds are tax-free in your hands.
Endowments offer attractive estate planning benefits. You can nominate a beneficiary to receive the proceeds of your endowment when you pass away. Alternatively, you can nominate a new person to take over ownership of your endowment product. Neither your beneficiaries nor the new endowment plan holder will be obligated to pay executor's fees in these instances, which can represent a saving of up to 3.5% (excluding VAT).
After three years, the entire fund value of your endowment is protected against creditors. The same applies for five years after the endowment has been terminated, provided the proceeds are payable to your spouse, children or parents.
During the minimum investment term of five years, you are only allowed one withdrawal and one loan. If you terminate your contract before the policy matures, termination charges could be applicable. This limited accessibility has a positive consequence – in that it encourages disciplined savings, helping you to stay committed to your savings over the medium- to long-term time horizon.
After your endowment reaches maturity, you have a tax efficient product that is also flexible. From that point onwards You have unlimited access to your endowment. This means that you can choose whether you want to do regular withdrawals to supplement your retirement income, ad hoc withdrawals as and when needed, or access a lump sum to meet another life or retirement goal.
A Sanlam endowment product could add value to your investment portfolio. Speak to your financial adviser for tailored guidance.