Friday, November 5, 2010

Endowment Insurance Explained

Similar to Term life insurance, Endowment insurance is also designed to cover the insured person for a specific period of time, however, that's what the similarities end. Endowment is more similar to Whole Life insurance except that an Endowment policy matures faster than Whole Life does.

An Endowment policy lasts for a specific period of time, for example, a 20 Year Endowment or an Endowment at 60 years. All that this means is that the policy will be paid off in that time frame. In a 20-year Endowment all of your premiums would be paid off in 20 years. In an endowment at 60 you only pay life insurance premiums until you're 60 years old, at which time your policy would be paid up in full. This makes Endowment much more expensive than regular Whole life insurance because you're taking an entire lifetime of premiums and compacting them into a short period of time. The shorter the period, the higher your premiums will be.

Endowment policies build cash value much faster than Whole Life policies do because you're paying your premiums out in a shorter period of time. During the period of coverage the insurance company will pay the beneficiary of the policy the face value in the event of the death of the person insured. If that person does not die during the specified period of the Endowment, then the owner of the policy will receive the face value when the policy reaches maturity. The cash value and face value will both equal the same amount when the policy matures.

The main purpose of owning an Endowment policy is so you can acquire a rapid buildup of funds over a short period of time. These funds can be used for any purpose needed. Endowment policies are not nearly as popular as they used to be.


Post a Comment