Life Insurance Endowment Policy

Life Insurance Endowment Policy or in short, endowment, is a type of policy which pay a lump sum to the insured after a specific period of time. The term of the policy, usually called maturity period, varies from 20 year to 30 years. Some policies set the maturity period to a specific age of the insured, namely 60 or 65 years old.

An endowment policy is quite similar to the whole life policy as both pay out the face value of the policy, either life insured is dead or alive. But, in whole life policy, the term of coverage is longer, namely until age 99. For the same amount of coverage, premium for the endowment is usually much higher compare to whole life. This is because the large portion of the premium in endowment is utilized for cash value build up, whereas in whole life, the focus is to provide higher amount of insurance coverage.

The period of premium payment in an endowment follows the term of the policy. If it is a 30-year policy, the insured usually need to pay the premium for 30 years unless death occurs. Upon demise of the insured, the face amount of the policy become payable. Upon pay out of the face value, whether the insured is dead or alive, the insurance coverage of the policy will come to an end.

Endowment is suitable for people who want stability in their investment. Market risk is minimal. If you cannot discipline yourself to save regularly in the conventional savings vehicles, namely savings account or fixed deposit account, endowment is surely a good choice for you. It is a type of forced savings. You may be surprised one day, on how you can save this amount of money all these while, to form a part contribution to your retirement expenses or for other purposes.

When an endowment policy matures and become payable as a living benefit, the sum is subject to tax. This is the disadvantage of the policy.

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