If you planning to buy an endowment insurance policy in doubt or not sure what is an endowment insurance policy? How does this policy work? what are the advantages of buying an endowment insurance policy? How it is different from term life insurance? what if you want to sell this policy in the future?
Let’s find out about the endowment insurance policy and understand all its workings and policies.
What Is An Endowment Insurance Policy?
An endowment insurance policy is a type of life insurance policy as well as acting as a life insurance policy that helps the policy holder in making money. Serving two purposes of giving financial coverage as well as providing protection in case of any unforeseen condition.
On an unfortunate event like the death of the policy holder the insurance company pay the lump sum amount to the policy holder family after a specific time. The maturities in endowment insurance policy could range from 10 to 20 years depending on the age limit. Sometimes in the case of critical illness, the policy also pays the policy holder.
In the case where the insurer or the policy holder survives the term period then they will receive the accumulated cash as their maturity benefit
It is also an investment fund these policies are designed to pay out in one of two scenarios-
- When the policyholder dies.
- When the policy matures and reaches the end of the policy term.
There is a range of different types of endowment policy on the market these include non-profit policies with profit policies unit linked cover and mortgage endowment policies.
When the policy matures all comes to an end you can access the maturity value this is the amount you have accrued over the duration of the policy this can vary depending on how well your investment performs.
The maturity value will either be estimated or guaranteed depending on your policy terms typically the maturity time will be 10 15 or 20 years they often have an age limit. And some will give a payout in the event of critical illness.
Advantages Of Buying An Endowment Insurance Policy
If you are planning to buy an endowment insurance policy plan then this could be a good decision as there are various advantages of buying an endowment insurance policy these can include the following:
- If you die during the policy term and depending on the features of the policy you choose you might be able to receive a bonus this happens if investors are successful when making their investments.
- Such as the policy helps you save finances for the future, in case you are planning a retirement this could be very helpful for funding your pension for example they also come with life cover which will give your family financial support.
- If you want to discontinue paying for your insurance endowments then you are left with two options- you can either cash in the life insurance investment or sell to a third party all your endowments, these third parties are known as traded endowment policy pay companies.
Difference Between Endowment Insurance & Term Insurance
| Features | Term Insurance | Endowment Plans |
|---|---|---|
| Type of investment | Life insurance | Insurance + wealth creation |
| Suitable for | Sole or co-income earners looking to support a family in their absence caused by death. | People who wanted to grow their wealth as well as grow it along with a life insurance protecting their family. |
| Premium allocation | The premiums paid go towards providing life insurance protection in the form of a death benefit to the family of the investor. | For paying the policy holder a maturity amount at the end of their endowment insurance plan some percentage of premiums gets invested. The remaining part is used for providing life insurance protection. |
| Returns yielded | There are no returns yielded in a term insurance plan because it is a pure protection plan. | The returns yielded depend on the interest rate of the endowment plan. The policyholder receives it as a lump sum or in periodic installments. |
| Maturity benefits | There are no maturity benefits in a term plan because the only coverage promised is a death benefit. Perhaps in the term plans have a premium return option, using which you will get all the premium amount paid by you at the end of the term plan. | Endowment plans comes with the maturity benefit policy in which the policy holders will receive the benefit once the term period gets over. |
| Tenure | The term insurance plan time period or tenure can range up to 30 to 40 years. | The endowment plan time period or tenure can range up to 20 to 25 years. |
| Premium price | The premium rates of a term plan are lower because it has only a single function of providing life insurance protection. | The premium rates of endowment plans are higher than term plans because endowment plans offer the twin benefits of life insurance and goal-oriented investment. |
Benefits Of Selling Life Insurance Endowment
If you don’t want to pay for your life insurance endowments then the next best thing you can do is to sell it, and upon selling the buyer from then is responsible for paying the premiums for the insurance and the buyer will receive the amount when the endowment life insurance matures.
Instead of canceling your insurance plan you can always sell the endowment policies to any third party company.
The fact is policy holders are likely to get more for traded endowment policies than surrendered ones generally people choose to sell their endowments for one of two reasons.
- Firstly the growth rate indicates have not saved as much as they expected.
- Secondly, if their circumstances have changed they might need to spend the amount saved so far before you choose to sell your endowments and decide what you want to use. The money for typically people use the endowments to pay off their mortgages make investments in stocks to pay off large debts and fees or even gift to somebody else.
If you decide to sell your endowments you next need to make comparisons between potential buyers and seek guidance before deciding who to sell your investments to some people.
Find that when their endowment policies reach maturity age the profits they get are much lower than expected you can ask your provider what could be the expected pay and then you can re-evaluate the pay.