Why Are Endowment Contracts Not Considered Life Insurance?

  1. 37376 POINTS
    David G. Pipes, CLU®, RICP®
    Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
    Endowments are a form of life insurance. Actually most permanent life insurance policies are endowment policies. For example, a whole life policy is actually an endowment at age 100, or 120 depending upon the insurance company. That means when you reach age 100 or 120 the cash surrender value of the policy will equal the face amount. That is what an endowment policy is. Endowment policies were very popular at one time and I have written policies that endowed in ten years.
    Answered on June 9, 2014
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  2. 21750 POINTS
    Jim Winkler
    CEO/Owner, Winkler Financial Group, Houston, Texas
    That is an excellent question! They are like wheat and white bread - both bread, but different kinds, and with different benefits for you. A whole life policy will generate a cash value slowly, and generally reach the point where the face value and the cash value match (or endow) at the age of 100, or 120 in most policies. Most people will receive their death benefit before the policy would endow. An endowment policy/contract is designed to endow much more quickly - generally in either a 20 year period, or at the age of 65. The premiums therefore are much higher than a traditional life policy. The idea here is that if you were to pass within the first few years, you would receive a big payout for few dollars, but the flip side is that you would receive an almost even payout if you were to die later in the contract. So why do it? These policies typically pay a higher interest rate on the cash value savings building up in them than the traditional, slower policies do, and that is about the only reason. They were popular once, but have faded as a rule from popularity. Thanks for asking!
    Answered on June 9, 2014
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