How does an endowment plan perform during a recession or in a period of a poor economic environment?

Hi Terry,

Short of the insurer announcing a cut in bonuses, endowment plans will still give you the reversionary bonuses in the policy, and for policie maturing, the terminal bonus.

Insurers are able to do this as they will keep surplus returns from good years in reserve and use them to 'pad' returns in bad years. Only in really terrible years (think 2008 GFC) will there be a situation where all insurers cut bonuses (then again, one insurer maintained their bonus that year). If that happens, you won't be getting the initial projections, but the very moment the first bonus is declared and vested in a policy, you're already making more than the initial guarantee provided to you. So the guaranteed return of an endowment can only keep going up from the initial numbers since bonuses are guaranteed once vested.

In that same vein, it doesn't matter when you purchase an endowment policy. If bonuses are going to be declared that year, anyone in that particular policy's par fund will get it, regardless of when they bought it. The real question is whether bonuses can be maintained for the entire duration of a plan; in my view, it is not impossible, but not easy either. So start by having a good guarantee on an endowment, this will ensure that no matter what happens, you have a floor on your returns.

Unless the insurer cuts bonuses, you will the projected bonuses listed in the policy.

You can't time a purchase because unlike a fund, you're not buying at a listed price. It doesn't matter when you enter into the participating fund.

Everyone buying the same product, gets the same return.