How Life Insurance Endowments Work: Everything You Need to Know

Shawn Plummer

CEO, The Annuity Expert

When it comes to life insurance, one of the most misunderstood topics is endowments. Many people don’t know what they are or how they work. This guide will discuss everything you need to know about life insurance endowments! We will cover an endowment, how it works, and why you might want one.

What Are Life Insurance Endowments?

An endowment policy is a type of life insurance policy in which the beneficiary will receive the face value of the policy upon the death of the insured or if the insured is still alive at the end of a specified period, whichever comes first.

Endowment policies are contracts initially designed to combine life insurance and savings components. There are different endowment policies, such as those that last for 5, 10, 20, 25, or 30 years or until a certain age, like 65 years old.

If you are still living after the set period of time, the face amount of the policy will be paid to you in one lump sum or installments. The premium payments for an endowment policy are higher than for traditional whole life contracts because they depend on how long you want the money to last.

Types of Life Insurance Endowments

Endowments are not usually sold today because the tax consequences have changed and eliminated many benefits that used to make them attractive.

  • A retirement endowment was created to be paid out when the person retires at age 65. Like whole life insurance, if the insured person dies before the maturity date, the face value of the policy is paid out as a death benefit. However, at maturity, the full face amount of the policy becomes payable in monthly installments.
  • The pure endowment ensured that the policy’s face amount would be paid only if the insured lived until the maturity date. If the insured died before the maturity date, all benefits were forfeited. This type of policy was rarely sold because it was a high-risk savings plan: if you died early, you lost all your savings.
  • Endowment life insurance is a combination of two types of insurance. The first type, called a pure endowment, pays you a living benefit at the end of the endowment period. The second type, called term life insurance, pays you a death benefit if the insured person dies before the end of the endowment period.
  • Juvenile endowment policies were designed to pay out when the policyholder turns a certain age to fund a college education.

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Endowments are an important part of life insurance, and it’s crucial that you understand how they work and whether or not one is right for you. At our company, we pride ourselves on providing customers with the best possible information about their life insurance policies. We offer free quotes so that you can find the policy that fits your needs without breaking the bank. If you have any questions about endowments or other life insurance topics, please don’t hesitate to contact us. We would be happy to help!

Life Insurance Endowments

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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