What is a staffing plan?
An endowment plan is a two-for-one product. It offers insurance coverage but also premiums based on investment returns. Before you run for the hills, endowment plans are not the same as the infamous investment-related plans. The two are quite different, but more on that later.
Endowment plans are policies that give you insurance coverage and act like a savings plan. Their main goal is to help you achieve your financial goals. This can include saving for your children’s future education or preparing a decent amount of money for a happy retirement. Many buy endowment plans for exactly these reasons.
An endowment plan has the potential to be very useful to you, provided you understand exactly what you are signing up for.
|Endowment insurance plans|
|Monthly premium payment|
|Fixed maturity time|
|Comes with a life insurance component|
|Short-term and long-term plans available|
Features of Endowment Plans
Before diving into the various existing policies, it is important to understand what staffing plans are. The majority of endowment plans on the market today have these traits in common:
1. Regular bonuses
Endowment plans require you to pay regular premiums throughout the life of the plan. These payments can be monthly, quarterly or even annually. The amount you pay for this premium may also differ from policy to policy. Nevertheless, recurring payments are commonplace when it comes to staffing plans.
2. It’s an insurance plan
All endowment plans have an insurance component (usually life insurance). When you pay that monthly premium, some of that money goes into your insurance coverage and what’s left goes into an investment fund. Each company and plan may differ in the exact ratio of investment to coverage.
3. Fixed maturity period
Endowment plans operate for a pre-allocated term, ranging from three to twenty years. Short-term plans, like the 3-year Tiq plan, are much rarer because investments tend to fare better over the long term.
Once your plan has matured, you will receive a payment. Sometimes consumers do not know the exact amount they will receive. Providers usually quote a sum when you sign up, which is the smallest amount you’ll receive after the plan expires.
Note that this value may be less than the sum of your bonuses, depending on the type of endowment plan.
Introduction to Participating and Non-Participating Staffing Plans
So you might be wondering: what types of staffing plans are available? True to the title, there are mainly two types of endowment plans – with and without participation. These two can vary in many ways, and it is important to understand the difference between the two.
Participating Staffing Plans
When you join a participating endowment plan, you agree to participate in the profits of an investment fund. Thus, you will receive dividends determined by the performance of the fund. The payment consists of two parts:
1. Sum insured
This is a fixed sum of money that is promised to you. Once you cash out after the policy matures, you are assured of that sum in full.
2. Benefits Not Guaranteed
Non-guaranteed benefits are all investment fund premiums. It depends on the performance of the fund, so these can be high but also very low. Insurers typically provide customers with an estimate of how much money they can earn based on past results, but none of this is guaranteed.
How do participating staffing plans work?
A fraction of the premium paid by all policyholders will be pooled into a single fund. This will then be invested in various assets such as corporate bonds, properties and many more. Each insurer has a different strategy, but they all have one goal: to achieve significant returns for the insured and the company.
There are three main types of bonuses you can earn if you decide to sign up for a crowdfunding plan.
1. Reversion bonus
Your insurer will regularly declare a reversion premium. Reversible means ‘right to own’ and therefore once a reversion bonus is declared, you will be entitled to that amount. This bonus will be added to the guaranteed amount of your policy. In other words, if a policy provider declares a survivor’s premium, you are guaranteed that money in full.
2. Cash dividends
Cash dividends, on the other hand, do not contribute to the sum insured. Instead, they are immediate cash payments that the insured can choose to withdraw, apply to future premiums, or reinvest with the provider.
3. Terminal Bonuses
Not to be confused with survivor premiums, a terminal premium is a lump sum payable that you can get once your policy expires or when you make a claim. Terminal means “at the end” and therefore a terminal bonus is another bonus you can earn after the expiry period.
Surrender of a participating contract
Since the insurance component of an endowment plan is life insurance, the cost of terminating a policy prematurely is extremely high.
Also, the payout you will get may be very low, or less than the amount of premiums paid so far. This payout comes from an accumulation of declared bonus cash. Usually this only happens after a minimum period and the value of the cash accumulation may not be much less than the premiums you have paid so far.
Therefore, it is recommended that you be prepared for consistent bonuses and the high commitment that comes with the plan before signing up for it.
Are participating endowment and linked investing the same thing?
Short answer: no. They are similar in that they both involve investments and are often confused with each other.
In an investment-linked plan, you are not guaranteed any initial return. In comparison, a participatory endowment plan guarantees you a base sum. You will receive at least this base sum in full when the policy matures. All other investment-related perks fall under unsecured bonuses and are just extra treats.
There are more differences between the two but for the most part, the sum assured is where they diverge the most.
Benefits and Risks of Participating Staffing Plans
The benefits of such plans are many.
1. Grow your savings and get insurance
A participating endowment plan can be ideal for people looking to grow their savings while getting an insurance package. It may be cheaper than trying to do both individually.
2. Safer option than investing alone
Insurers usually hire seasoned professionals to support the investment fund. Since the money is pooled by other policyholders, a fund’s portfolio can be diversified, making returns much more stable. Participating Capital Accumulation Plans are considered a low-risk investment.
But just as traditional investments are risky, so is an equity endowment plan.
3. Risk of small returns
Markets are volatile and the losses may be all too real. That’s why many people avoid participating capital accumulation plans, especially when the sum guaranteed is less than the total premium you pay. A participating endowment plan is not for the faint hearted.
Staffing schemes without participation
Non-participating endowment plans are quite straightforward as they do not include any unsecured benefits.
As the policyholder, you will not be entitled to any profit made by the company and the money you will receive when the policy matures is guaranteed. There is no investment involved. So if you are risk averse and prefer to be on the safer side, a non-participating endowment plan may be something to consider.
Surrender of a non-participating contract
Like its participating counterpart, the cost of premature termination of a non-participating contract is also very high. Also, non-participating policies may not have a cash value because there are no declared premiums. It’s important to do your research and understand how much you could actually receive if you want to cash out your policy prematurely.
Here’s our advice: don’t.
Key points to remember
Summary of participating and non-participating policies
|Stand to win the initial sum and additional bonuses||Stand to win only the initial sum assured|
|Potentially higher cash value||Potentially lower cash value|
Are staffing plans for you?
|You need insurance coverage||You already have insurance coverage|
|You need a relatively stable investment||You are looking for high returns (redirect to stocks or SSB)|
|You are ready for a long-term commitment||You shouldn’t commit long|
Depending on your current financial situation, savings habits, and future life goals, endowment plans may be something to consider for all the benefits they provide to their holders. If you want to learn more, check out some of the best staffing plans here. Whether or not you choose to enroll in an endowment plan, we hope this article has helped you become better informed to make the best choice for you.