Endowment Life Insurance – What it is and How it Works

Endowment life insurance is short-term life insurance. This life insurance offers policies that only last temporarily, meaning they do not last your entire life. Instead, you are allowed to select how long you want your policy to last. Depending on your saving goals, you can also set a specific date for this life insurance.

For instance, you can select coverage until you’re 65 or until your children get into college. Then you can use the money for retirement or college expenses. If a policyholder dies before a specific date is chosen, a lump-sum payment will be granted to their families. This payment is called an endowment.

Endowment Life Insurance

This life insurance is different from other life insurance policies. This is because it does not last the whole life of the policyholder. Another difference between them is that, after the coverage ends, a lump sum amount if repayment is not made for other life insurance policies, unlike endowment life insurance.

How Does It Work?

While you sign up for endowment life insurance, you are allowed to choose the size of your death benefits along with how long you want your coverage to last. Additionally, you have the flexibility to determine the payout amount you prefer at the maturity of your life insurance endowment policy. After that, you will pay for premiums to keep your endowment life insurance policy active.

However, part of the premiums you pay will be channeled toward your insurance policy, while the rest will be invested by the insurer to guarantee repayment for the future endowment payment. Note that the shorter the policy term of your endowment life insurance, the more expensive the policy premiums, and the shorter the time you have to grow savings for your target payout. At the end of your term, you no longer need to pay for premiums, but you will lose your life insurance coverage.

Advantages and Disadvantages

Getting life insurance coverage comes with benefits, making future expenses easier to meet. This life insurance may not be a good option for some people, but before deciding, below are some of the advantages of this life insurance.

  • It combines life insurance with savings.
  • It is customizable.
  • Returns and payouts are guaranteed.

While there are advantages, below are some of its disadvantages.

  • Costly premiums.
  • Temporary life insurance protection.
  • Low returns.

If you are looking for a flexible life insurance plan, endowment life insurance is a good option.

Is Endowment Life Insurance Worth It?

Endowment life insurance may be worth it if you want life insurance that builds a wide guaranteed payout while you are still alive. It allows you to cover multiple financial needs inside a safe. Aside from this, this insurance is expensive, especially for temporary policies and those that have large death benefits. These life insurance returns are lower than what you may receive by investing. You are exchanging potential growth-endowment guarantees.

What are the risks of an Endowment Life Insurance Policy?

Because these insurance policies are expensive, one of their risks is that if you cannot afford your premiums, you may lose your life insurance coverage. Another risk is that having these policies makes you unable to afford enough life insurance to properly cover the entire family. One final risk you may encounter is that the endowment returns may not grow your savings fast enough to keep up with inflation.

What Happens to My Endowment Life Insurance Policy If I Stop Paying?

If you stop paying premiums on endowment policies before your chosen expiration date, your coverage will be canceled by the insurance company. Depending on how much you paid for your policy, you may also be given a biased amount back. This cash return is also referred to as the surrender value. However, your insurer will inform you of the surrender value of your endowment policy.

What Does Endowment at Age 65 Mean?

This means that your endowment policy is set to expire when you turn 65. Policyholders who live to age 65 get a lump sum payment from their policy, which they can use for retirement. However, if the policyholder dies before age 65, your family will receive the endowment life insurance death benefits.

Who Should Consider Purchasing an Endowment Plan?

An endowment plan can be an alternative source of income. It offers you a large sum of income in the future. It also provides financial protection for your loved ones if you don’t live to the expiration date. This endowment life insurance plan can be better if you would like to grow your savings at a lower risk while protecting your loved ones from future financial issues.