When it comes to your finances, the options open to dental professionals are limitless.
Endowment Policies, for example, are an interesting possibility to explore that could be utilised to save in the long-term. But where do you begin?
What is an Endowment Policy?
Effectively, an Endowment Policy is a type of savings plan. The most common type of these plans are Life Assurance Endowment Policies. These are designed to pay out a lump sum after a specific term or, sometimes, in the event of death. They are usually taken out to ensure that a mortgage on a property can be paid should the unthinkable happen, but they can also be utilised as a way to save over a long period of time.
Different types of Endowment Policy
As with any form of savings plan, individuals will come across many different types of Endowment Policies if they scour the market.
Non-profit policies are the most straightforward, and simply give out a set amount upon completion. Of course, these policies are no good if you’re looking to make excess capital, as the pay-out is fixed from the start.
With-profits policies are the most beneficial option. Any funds paid into this type of plan will have a dual purpose. The first of these is to cover the cost of any Life Assurance protection included in the policy. These premiums are invested by whoever supplies the policy to increase its value over time.
The other purpose for funds is that, over time, the value of the savings element grows. Eventually, this means it will exceed the total of the premiums paid, allowing the policy to accrue funds and act as a way to increase your capital. Sometimes this option is a better alternative than relying on interest of savings accounts, which is why it has become a popular choice for people looking to save money in the long-term.
Generally speaking, these contracts are established for a set period, usually spanning from 10-25 years. As such, these policies are subject to advantageous taxation rules that only apply to Life Assurance policies with terms of 10 or more years. These taxation rules are known as Qualifying Rules, and allow for any investment gains made within applicable policies to be paid to the policy holder without any personal tax being deducted.
As these policies are commonly created as a means to pay off a mortgage, the length of the terms is usually the same length as your original mortgage agreement (typically 25 years). While incredibly rare, there are Endowment Policies that are shorter than 10 years available, however, due to this shortened timeframe, they are unable to benefit from the taxation rules of longer policies.
With-profits policies put the power of investment into the hands of the Life Assurance company. The benefit of this is that on years where high investment returns are achieved, they put some in reserve. This helps to cancel out any bad years of return, so that the bonus on your policy is likely to be steady across the duration of the agreement.
The third type is a Unit Linked Endowment Policy. This type allows you to buy units in investment funds, putting you in charge of the unit trusts your expenses are invested in. Your income will entirely depend on the performance of these investments.
Your funds in the policy
In nearly every scenario you’ll want to leave the funds invested in an Endowment Policy alone so that they can generate the best return for you. However, should you find yourself in a pinch and urgently need funds, there may be options available – though you’ll need to contact your policy provider to find out the terms and conditions.
It’s not uncommon for Endowment Policies to restrict money being drawn before the maturity date, so this is something to bear in mind before you invest.
Selling your policy
If, for whatever reason, you think it’s best to sell your policy, there are a number of things to bear in mind. First of all, you will no longer be considered the owner of the policy after its sale, but the Life Assurance cover will continue to be based on your life. Plus, if you are to die during the terms of the policy, the new owners will be paid the proceeds – the same applies should the policy reach maturity.
Unit Linked Endowment Policies are unlikely to be sold on. As such, if you have taken out one of these types of agreement, surrendering the policy is likely the way forward. Due to the nature of how this type of policy works, it’s usual that the value of surrendering it will be similar to the investment value.
Expert advice
As you can see, Endowment Policies are not necessarily straightforward. As such, it’s always helpful to enlist the advice of financial experts.
The award-winning team at money4dentists have decades of experience helping dentists to choose Endowment Policies that will work best for their unique circumstances – making them a trusted choice for dental professionals across the nation.
Just another option
Finances are a tricky labyrinth to navigate without expert advice. However, Endowment Policies are definitely a good option that professionals can utilise to make some long-term savings, as long as they choose the correct policy for them.
For more information, call 0845 345 5060, email info@money4dentists.com or visit www.money4dentists.com