Choosing the best life insurance policy for your needs represents an essential step toward safeguarding your family’s future. While you’ve likely heard of term life and permanent (whole) life insurance policies, you might not have considered an endowment life insurance policy. This form of permanent life insurance offers a range of benefits.
What is Endowment Insurance?
In contrast to traditional life insurance – which pays benefits when the policyholder dies – endowment insurance policies pay benefits after a pre-determined term has passed. Terms generally range from 10 to 20 years.
When the insurance endowment policy reaches maturity, the policyholder receives the full benefit amount, also known as the face amount or endowment. If the policyholder dies before the term ends, the face amount is paid to the designated beneficiary.
Among the Benefits
Insurance endowment policies offer a number of benefits. They can function as a low-risk way to save. Policyholders choose how much they want to contribute each month – or the premium amount – and how long they want to the term to last, generally 10 or 20 years.
As long as the premiums are paid, the policyholder – or their beneficiary – is guaranteed to receive the endowment when the term ends. In addition, insurance endowment policies are risk-free, and so the policyholders don’t have to worry about the ups and downs of interest rates or the stock market.
Once the term matures and the policyholder receives the endowment, funds can be used toward whatever the policyholder or beneficiary chooses. Many choose to use the money to pay for college. Others use the funds as collateral for personal or business loans. Business owners can ensure that their business continues to operate after their death by designating the policy payout for use as operational capital.
Policyholders also may benefit by incorporating an insurance endowment in their estate planning. The funds can be used to pay off inheritance tax, or as a donation to a charitable or educational organization.
Saving for College
Unlike 529 plans, endowment insurance policies don’t count against financial aid eligibility. On average, students who have 529 plans and college savings accounts tend to qualify for about 5.6% less financial aid when they apply through the Free Application for Federal Student Aid (FAFSA) program.
As an added benefit, insurance endowment funds can be used to pay for all costs associated with higher education, including tuition, room and board, textbooks and other fees.