Life Insurance That Doubles as a Personal Savings Plan

When you are shopping for life insurance policies, there are many options to consider. Term life, whole life, and endowment life insurance policies are all possibilities that offer distinct advantages and disadvantages. Endowment insurance is unique because it doubles as a personal savings or investment plan. When you set up the policy, you choose how much you want to contribute each month and when you want the plan to mature. If you die before the policy’s end date, your beneficiary will receive the payout as a death benefit. However, if you are still alive when the policy matures, you’re guaranteed a payout, called an endowment, that you can use to pay for a child’s college education, retirement, or other expenses.

The Importance of Planning for the Future

• Average value of an individual U.S. life insurance policy: $168,000

• Total value of all current U.S. life insurance policies: $11.8 billion

• Total number of life insurance policies in force in the U.S.: 277,830,000

Americans are more concerned about financial planning than ever before, with billions of dollars spent annually on investments, college savings, and life insurance plans. If you are the breadwinner in your family, the financial burden of your death could be catastrophic for your loved ones. Life insurance offers you a way to plan ahead and care for those you love even after you are gone. Endowment life insurance provides this benefit, along with the possibility of using the money you invest in monthly premiums to contribute to other future financial goals. It’s a way to save for the future, while also ensuring that your family will be financially cared for in the event of your death.

Ways to Use Endowment Insurance As An Investment 

A recent survey by LIMRA found that holders of life insurance policies intended use their payouts as follows:

• 26% to help pay off a mortgage

• 14% to supplement retirement income

• 9% to provide funds for a child’s college education

• 8% as a tax-advantaged way to save or invest

There are a number of ways you can put the money from your endowment life insurance policy to good use when your policy matures. Many people choose to use their endowment to pay for a child’s education, largely because the endowment money isn’t counted against financial aid eligibility. For those who are self-employed or own a small business, endowment insurance offers a small retirement plan, promising them a set payout to use during retirement when the policy matures. 

How Does An Endowment Insurance Policy Work?

When you pay monthly or annual premium into an endowment policy, part of that payment is used to buy life insurance, while the rest is pooled in an investment fund that goes towards your endowment payout upon maturity. If your primary goal is to save money for the future, this policy isn’t the best option because not all of the money is placed in savings. Endowment insurance is typically best used by those who are looking for the combined benefit of both life insurance and potential future payouts, rather than heavily relying on one aspect.  

Advantages of Endowment Insurance

• Simple bundled coverage: The major advantage of endowment insurance is the simplicity of a bundled coverage option. Rather than investing in both a college savings plan and term life insurance, you can get both of these in one combined policy.

• No-risk investment: Many favor endowment policies because they are considered risk-free with no interest rate or investment risk. As long as you pay your premiums, you can expect to receive a payout either at the time of your death or when the policy matures.

• No medical exams: Unlike most whole life insurance policies, qualifying for endowment life insurance doesn’t require a medical exam. This makes endowment insurance a smart option for those with medical conditions that would exclude them from qualifying for whole life insurance coverage.

Disadvantages of Endowment Insurance

Endowment life insurance might sound like a dream come true, but it’s important to carefully consider all of your options before you purchase this type of policy. In some cases, you may be better served investing in a different plan.

• Low risk = low rewards: While you won’t have to worry about losing money on an endowment policy, you also won’t experience the same potential financial rewards that you might gain by choosing another investment plan.

• Taxable earnings: Unlike most tax-sheltered college savings plans, you will have to pay taxes on the earnings from your endowment insurance plan. So while you will receive a payout that you can use to contribute to your child’s education, the tax loss might be enough to offset any advantages.

• Less bang for your buck: In the larger scheme of things, endowment insurance policies tend to pay out much lower cash values than other life insurance or college saving plans. If you invest the same amount of money in both a whole life insurance policy and a college savings plan, then you could actually receive much higher payouts in the long run.

Is Endowment Insurance Right for You?

Endowment insurance can be a smart way to invest in your future, but it’s not right for everyone. If you are attracted to the convenience of a combined life insurance policy and savings plan, then an endowment policy might be the right fit for you. Talk to one of our independent insurance agents today so they can walk you through the potential benefits and drawbacks of endowment insurance, providing you with one-on-one support as you consider all of your options in planning for the future. If you’re considering an endowment life insurance policy call us today to learn more.