Endowment Life Insurance Policies and Their Features
An endowment plan is basically a life insurance policy designed to pay out a fixed amount upon death or after a specified term. Typical endowments are paid out at different ages ranging from early childhood to old age. Some policies also cover in the event of critical illness.
Endowments are paid for by the premiums paid by the insured. The cost of an endowment plan is equal to the difference between the face value of the policy and the average lifetime income of the person providing the insurance. The insurance companies usually calculate their endowment premium rates on the basis of age, the area of residence, sex, and the endowment value. Some also consider the possibility of paying out a lump sum following the death of the insured.
Endowments differ from ordinary life cover in that they are normally paid upon death or at the end of a term. This is opposed to life cover where a policy matures and the benefit is paid out. Ordinary life cover does not pay benefits until a particular period has elapsed called a “term”. With endowments, there is no such thing as a “term”. The endowment plan simply provides the insured with income until the policy matures.
As with most life policies, endowment plans feature premiums that rise with age. This means that persons nearing retirement age will have to pay more than others of the same age. In some cases, a higher endowment plan premium may be required in order to claim a benefit. The benefits from endowments can also be structured differently from normal life insurance plans.
Unlike term life insurance plans, endowments feature a fixed premium rate for the life of the plan. If the insured does not die during the lifetime of the plan, the endowment plan is continued in effect for that period of time. During this period, the premium of the plan remains unchanged. At the end of the plan’s term, if the insured has not yet passed away, the premium of the plan then becomes slightly less than it was at the time the policy was initially purchased. However, should the insured pass away during the term of the plan, the premium would have to increase dramatically.
As with any life insurance policy, endowment plans feature a number of features which can affect the premium payments of the plan. These include: age, gender, height, weight, and race of the individual who is insured. Some insurers also allow the term length of the endowment plans to be extended. Also, the total amount of coverage provided can be increased over time. The total coverage amount is determined by multiplying the initial sum assured by the number of years in which the policy holder lives. The longer the person lives, the higher the monthly payments would be until the time of the policy holder’s death.
In contrast to endowment life insurance policies, endowment plans do not accumulate savings for the benefit of the policy holder. Instead, the money paid into the plan’s endowment grows as an investment. Unlike certain other types of plans, the endowment plans grow with the investments that the policy holder has made. When these investments begin to produce returns, the policy holder will receive a small profit.
Endowment plans also feature a number of different forms of bonuses. Most policies come with guaranteed additions, which are sums assured by the insurer. Other bonuses are dependent on the policy holder’s contributions and the insurance company’s investments. There is also the option of endowments that feature no guarantees apart from guaranteed additions and guaranteed investment growth.