Day 24 - Endowment Plans - Good or bad?

One of the most frequently asked questions on various financial forums is, "Should I keep or surrender my Endowment plan?" 

A variant of this question is, "My insurance agent is proposing an Endowment plan; should I buy or not?"

People are split between whether I should go for high growth or stay in the safety of endowment plans.

The Alternative?

With the stock market out-performing most asset classes in the last two decades, endowment plans seem to have lost their charm.

Easy access to Mutual funds, ETFs, and stocks has made them more popular among young and enterprising investors.

The excitement of the ups and downs of the stock market and the possibility of making quick returns attract many to these assets.

On the flip side, they are slowly shifting the focus from wealth creation to short-term profits.

In today's world of instant gratification, people's patience levels are waning steadily; as a result, they are getting lower returns than the market could offer.

People are constantly chasing the magic bullet, only to realize late that it seldom works. 

Many are even losing their hard-earned money, swearing not to venture again into risk assets. 

People have to realize that stock markets are a zero-sum game in the short run. Someone has to lose for you to make a quick buck, and vice versa.

Ideally, you should focus on long-term wealth accumulation and legacy creation instead of chasing short-term profits.

A Sense of Certainty.

Endowment plans are ideal when it comes to building long-term wealth. They keep up with inflation. Provide life cover, tax benefits, and a sense of certainty to your portfolio.

The slow, boring growth and long-term focus of endowment policies can complement your exciting risk assets investing.

Considering that even safe havens like bonds and gold have been quite volatile in the last few years. Investors are better off having both endowment plans and market-linked assets in their portfolio to balance the risk and ensure peace of mind. 

Investing in an endowment plan for a part or whole of your crucial goals can help you become a better investor with risk assets.

Inefficient at protection.

However, endowment plans are less cost-efficient than term life insurance or ULIP(Whole of Life Plans) for providing life cover and other protection benefits.

Last Word

If your goal is purely protection, you can avoid endowment plans altogether.

If you want to achieve crucial goals like saving for your child's education, they can be a good fit, enabling capital accumulation while covering the risk.

Endowment plans make the achievement of crucial goals more certain. 

Learning about endowment plans was the task for Day 24 of the Win With Money Challenge.

See you tomorrow.