Friday, November 5, 2010

What is Endowment Insurance?

In Life Insurance, by Dan McGill, 1967 Edition, we read, "from the standpoint of structure, it may be said that an endowment policy is a combination of pure or level term insurance and a pure endowment. The same description may be applied to a whole life policy, which is simply a combination of term insurance for a period extending to age one hundred and a pure endowment for the same term."

Barron's Dictionary of Insurance Terms by Harry W. Rubin, third edition, 1991 defines PURE ENDOWMENT as "Life insurance policy under which its face value is payable only if the insured survives to the end of the stated endowment period."

The Handbook of Insurance by Clyde J. Crobough, 1931, speaks of the attributes of endowment insurance: "Some of the special merits of the endowment policy may be summarized briefly: 1. Is a method of compulsory saving. 2. Combines protection and investment. 3. Helps to create funds for special objectives which the policyholder may use."

Endowment life insurance policies have been rarely used in the last ten years. Prior to this, they were popular as a savings mechanism at many life insurance companies. Today, annuities and or universal life have replaced endowments as a popular concept. However currently, endowment life insurance policies seem to be making a comeback. More and more insurers have been offering these policies to satisfy various life insurance and income tax needs. The advantage of an endowment life insurance policy over a tax-deferred annuity is that upon passing to the beneficiary, income tax on the interest earned will have to be paid on the annuity but not on endowment life insurance policy.


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