Endowments

A Tax-Efficient Investment with Powerful Estate Planning Benefits

When South Africans think about endowment policies, they often associate them with tax benefits - and rightly so. However, endowments offer much more than just tax efficiency. They can be powerful tools for estate planning, creditor protection, and long-term wealth diversification.

We help clients understand how endowments can fit into a well-rounded investment strategy - especially for high-income earners, business owners, and trusts.

What Is an Endowment Policy?

An endowment is a type of investment policy offered by a registered life company. It combines long-term investing with the structure and protection of a life insurance policy.
Typically, an endowment runs for a minimum of five years, during which investors can access a range of underlying unit trust portfolios.

At the end of the five-year period — or on the death of the life assured — the policy pays out as a lump sum to the owner or nominated beneficiaries.

While endowments share many similarities with sinking funds, the key difference is that an endowment includes a life assured, giving rise to several additional benefits.

The Advantages of an Endowment Policy

Tax Efficiency and Simplified Administration

Endowments are taxed within the policy, meaning the investment provider handles the tax administration on your behalf.
The fixed tax rates are particularly attractive for investors and trusts in higher tax brackets:

  • Interest: 30%

  • Dividends Withholding Tax: 20%

  • Capital Gains: 12%

For individuals earning above the 30% marginal tax rate — and trusts taxed at up to 45% — this structure can improve after-tax returns.
After the initial five-year restricted period, withdrawals can be taken as tax-free income, while growth continues to be taxed within the product.

Liquidity and Quick Payout at Death

Unlike direct investments such as unit trusts, property, or shares, which form part of your estate and may take months (or years) to settle, endowment proceeds are paid directly to your nominated beneficiaries.

That means:

  • Immediate liquidity for your spouse or dependents.

  • No executor’s fees on proceeds paid to beneficiaries.

  • No estate delays — payments are typically made within weeks.

This makes endowments a valuable estate planning tool, ensuring your loved ones have access to funds when they need them most.

Creditor Protection

One of the lesser-known advantages of an endowment is its protection against creditors.
After three years, the capital within an endowment becomes fully protected — and this protection continues for five years after the policy ends (including after death).

This protection extends even to assets purchased with the proceeds (for example, a property bought by a beneficiary using the payout).
For business owners, professionals, and farmers, this safeguard can provide peace of mind during times of financial difficulty.

Estate Planning and Succession Flexibility

Endowments allow for multiple beneficiaries, making wealth transfer straightforward and efficient.
For trusts, a sinking fund (which has no life assured) can be a suitable alternative, avoiding potential estate duty implications while maintaining similar tax advantages.

Together, these investment structures provide flexibility in succession planning, helping families preserve and distribute wealth efficiently.

Diversification and Risk Reduction

Many South African entrepreneurs and farmers hold most of their wealth in their businesses or property. This can create concentration risk.
An endowment allows you to diversify wealth into professionally managed investment portfolios, spreading risk across different asset classes — all within a tax-efficient, estate-friendly structure.

Is an Endowment Right for You?

An endowment can be an ideal investment vehicle if you:

  • Are a high-income earner or trust seeking tax efficiency.

  • Want to provide immediate liquidity to beneficiaries.

  • Need creditor protection for long-term assets.

  • Want a regulated, managed investment with built-in estate planning advantages.

However, endowments are subject to Regulation 54 of the Long-Term Insurance Act, and contributions are limited by the 120% premium rule. That’s why expert guidance is essential before committing funds.

Speak to a us

Our financial planners help clients evaluate whether an endowment policy, sinking fund, or unit trust portfolio best supports their long-term goals.

We consider your tax position, estate structure, and investment timeline to create a holistic financial plan that works for you and your family.

📞 Contact us today to discuss how an endowment can enhance your investment and estate planning strategy.