How is an Endowment Plan Different From a Money-Back Policy?
Endowment plans have many advantages over other forms of life insurance. For instance, they provide more insurance than term life policies, even though they only provide coverage for a limited period of time. They also provide tax deferment, which is an important advantage over whole life policies, and they offer the flexibility of having money available for investments. There are many types of endowment plans, each with its own advantages and disadvantages.
A full-term endowment plan is an endowment plan that provides coverage during the lifetime of the policy holder. Typical endowment plans payout in a lump-sum upon death or a specified age limit. Some plans also cover a critical illness, and in the case of life-threatening illness, money is invested in a trust fund until the death of the policyholder. This ensures that money is available to the beneficiary in case of his or her need.
The most obvious advantages of endowment plans are their safety and insurance features. Endowments offer financial protection for the beneficiary in the event of his or her disability or death. An endowment plan’s death benefit protects money that would otherwise go to waste if death did not occur. Another major benefit of endowments is that they provide long-term financing for educational expenses or healthcare costs for the beneficiary or beneficiaries. In this way, endowment plans ensure that funds are available to pay for future financial needs and are therefore risk-free.
Unlike ordinary life insurance plans, endowment policies are guaranteed by the insurance company, which provides the policyholder with a fixed interest rate throughout the term. While other insurance plans may fluctuate in value as rates change, endowment policies are guaranteed to remain fairly constant throughout the life of the policy. Moreover, endowment plans have very low risk factors, which means premium payments are generally higher but death benefits are lower.
Endowments are also good for certain types of business ventures. Some business owners prefer to have endowments because these policies allow them to receive additional bonuses at retirement. Endowment plans payout in a lump sum, which can be used for a variety of purposes such as paying off debts, paying down the business credit line, and funding new ventures. If the amount of the bonus increases over time, the policyholder receives additional amounts as salary or as equity distributions.
Endowment policies are offered in two forms: standard and preferred. A standard endowment plan pays a fixed rate premium each year. The premium rates offered by different insurance companies can vary significantly. For this reason, many financial planners recommend that people purchase standard endowment plans.
Preferred endowments differ from standard endowments in that they offer an improved return on investment. These policies do not come with fixed premium rates but instead their price depends on a number of factors. Most often, premium rates are based on the current health of the policy holder. Other factors that affect premium rates include: the person’s age, whether he or she is overweight or obese, the level of his or her debts, and the amount of money that he or she currently owes.
Before people choose any type of endowment policy, they should first consider how is an endowment plan different from a money-back policy. Endowments provide guaranteed returns money-back policies do not. However, with a money-back policy, if the customer is dissatisfied with the service provided, he or she can always request for a refund. Money-back insurance plans pay out the full face value of the policy to the insured once the customer terminates his or her policy. This means that customers must make their money payments, even though the policies are terminally ill.