An endowment policy is a type of life insurance policy coupled with a savings plan that is designed to pay a lump sum during a specific time period, typically on its maturity, or upon the death of the insured. It is similar to a term life insurance policy, only with the additional benefit of savings and payout.
What is an Endowment Policy?
With an endowment policy, you can determine how much you want to save each month and when you want the policy to be released. When the policy matures, you are basically guaranteed a specific payout, known as the endowment, based on your monthly payments. Yet, if you were to die before the policy matures, your beneficiary will receive the death benefit, as well as the payout.
Types of an Endowment Policy
Endowment life insurance is a packaged deal that provides financial protection in the case of a death, as well as money for future expenses upon the policy’s maturity. There are two types, a ‘with profit’ and ‘without profit.’ With profit endowment life insurance provides a yearly bonus in addition to the sum. Without profit endowment life insurance only includes the lump sum insured.
How is the Money from My Endowment Policy Invested?
Depending on if you choose an endowment policy with-profit or ‘without profit’ will depend on how your money is invested. With profit means that your profit will be linked with other investors with fewer ups and downs than investing in shares. Or, you can choose without-profit, meaning that you will only get the lump sum of your endowment policy.
Who Should Consider an Endowment Policy?
An endowment policy is the right life insurance choice for a number of individuals. It’s a good fit if you are looking to save money for a particular item, event or goal over an extended time period. It’s also good for those who want to receive a guaranteed lump sum at the end of your insurance policy term.
How Does an Endowment Policy Work?
With an endowment policy, you have to make your monthly or annual payments, as with any life insurance plan. Part of the monthly payment is for your life insurance. This depends on your age, gender and length of time of your endowment life insurance fund. The rest of your payment is invested into your ‘with profit’ portion of your policy or pooled into the company’s finances to meet current needs and shared with investors, like you. The ending lump sum paid out depends on the performance of your investments determined in your endowment policy.
An Endowment Policy Offers Returns and Risks
An endowment policy will guarantee to pay at least the minimum amount provided once the term expires or in the event of your death. The value of with-profits policies is that your investment will grow steadily and bonuses are added. The benefit of without-profits is that your money is pooled with other investors and you may get a higher (or lower) return.
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