What are endowment policies?
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Asked July 21, 2010
Endowment policies are a special type of whole life insurance policy, and offer a cash payout when the policy matures. They do not offer the policyholder the option of interacting with the investments as some whole life policies do, but do provide the opportunity for a full pay out during the lifetime of the insured. Insurance companies bear the entire risk on the policy, but the policyholder pays higher than usual premiums.
In many respects, an endowment policy is a type of term life policy, as each policy is written for a specific duration, unlike most whole life policies which last for as long as the insured lives and the premiums are paid up to date. Where it differs from a term life policy is that an endowment will pay the cash amount at the end of the term whether the insured person still survives or not.
One example might be to create a starting fund for your children when they reach a responsible age. If you die before they reach that age, the policy pays out in a lump sum, and if the policy is allowed to mature then the payout will be the full value of the policy paid to the named beneficiaries.
An endowment policy tends to have the highest premiums of all life insurance policies. This is because of the known payout on the policy. During tough economic times, some insurance companies pull their resources out of endowment fund markets, leaving the burden of generating sufficient cash flow on a smaller percentage of participating companies.
Answered July 21, 2010 by Anonymous