Shopping around for life insurance is easy, but understanding exactly what the insurers are offering us is not always easy to understand at all. Therefore, when you are offered endowment life insurance coverage, chances are that you do not know exactly what they are meaning by that. However, this endowment is simply a financial term to describe the payment of a lump sum either on the policy’s maturity (for a specified term) or at the time of death, which terms are included in your life insurance policy.
Understanding Endowment Life Insurance
Endowments are usually set in maturities that range from ten to twenty years, but can go up to a certain age limit. Endowment policies oftentimes pay for critical illness, and can be taken out as unit-linked or traditional with-profits insurance. Endowments can be cashed out by the policy holder or surrendered according to the terms of the life insurance policy when an endowment applies.
Unit-Linked Endowments
This is type of collective investment component which is added to a life insurance policy, although this is mostly a financial option that is offered in the UK and offshore insurance centers. Also known as Unitized insurance funds, the unit-linked endowments offer access to investment tools that are not commonly found in life insurance policies or pension insurance policies, which are the two types of coverage applied.
With-Profits Endowment Policy
This type of policy is more commonly known as Participating Policy in the USA, but in America as in the Commonwealth, endowments are part of a life insurance contract where the premiums are invested and the profits resulting from such investments usually pays for the premiums of the policy holder, or shared as a bonus or dividend.
Policy of Endowment
A life insurance policy that is based on endowments is usually called endowment life policy, policy of endowment, or simply endowment, and it is a special financial product that produces cash value that is commonly used to cover expenses such as college for your children or for investment plans that you could have in mind towards education.
When you take out this type of life insurance policy, the insurer let you select the amount of money that you want to save on a monthly basis, as the term when you would like it to mature. In this case, it is not only the premiums, which are invested (in the case of whole life insurance), but also your voluntary monthly contributions, which grants you a payout that is called endowment.
The advantage of this policy is that it does not count when it comes to applying for federal aid, in the case that you use the endowment for college, and it is also risk free. Opposed to standard life insurance policies, a policy of endowment does not require a medical exam, which makes it easy to shop around to get one.
Either way, if you are still confused about what endowments are and what they cover; approach your insurance agent for further and professional orientation. With there explanation, you should be able to make an educated decision on the type of policy you need.