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 chosen, a lump sum payment will be granted to their families. This payment is called an endowment. Because it does not cover the insured for the whole of their life, it differs from other types of insurance. Endowment life insurance does not pay a lump sum amount if repayment is not made for other life insurance policies after coverage ends.
How Does Endowment Life Insurance Work?
While you sign up for endowment life coverage, you are allowed to choose the size of your death benefits along with how long you want your coverage to last. You can decide the amount you want to receive at the end of your policy payment and pay premiums to maintain the endowment life policy’s active status.
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. Endowment life insurance with shorter terms tend to have higher premiums and less time for saving for the target payout. At the end of your term, you will no longer be required to pay premiums but your life insurance coverage will be terminated.
Advantages and Disadvantages of Endowment Life Insurance
Getting life insurance coverage comes with benefits, making future expenses easier to meet. Endowment life insurance may not be a good option for some people, but before deciding that, below are some of the advantages of this life insurance.
- It combines life insurance with savings.
- It is customizable.
- Return and payout 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 coverage plan, endowment life policy 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, it 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 ever 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 on 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 provides a potential source of income in the future, offering a substantial future income. It also provides financial protection for your loved ones if ever you don’t live to the expiry 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.
