Endowment insurance is a form of life insurance which pays out once it matures, regardless as to whether or not the insured is alive. This is one of the most costly forms of life insurance, and it can be used in a variety of ways. As with other types of investments, it's a good idea to talk to an accountant or financial advisor before purchasing endowment insurance, to confirm that it is the best possible option. Endowment insurance is highly inflexible, which can make it a poor choice for people who are afraid of experiencing fluctuations in income or financial need.
When an endowment insurance policy is written, it is designed to expire in a period of time which can range between 10 and 30 years. The amount of the payout is determined by the amount of the premiums, and the shorter the contract, the most expensive the premiums. Many people settle upon a 20 year maturity date, which allows them to access the funds within a reasonable period of time, but will not be accompanied by premiums which are difficult to pay.
Once the endowment insurance matures, a payout is made to the insured. If the insured is deceased, the payout goes to the beneficiary named on the policy. Endowment insurance may also pay out if someone becomes severely ill or seriously disabled, and if this is an option which is desired, the insured should make sure to discuss it when purchasing the policy.
People can use endowment insurance for things like planning for college expenses, setting aside money for retirement, and other situations in which there may be a financial need in the future. The advantage to endowment insurance is that it pays out a set and known amount, making it more reliable than other types of investments. Disadvantages include the fact that the funds will be taxed, the inability to take advantage of upward swings in the market which could be used to generate more money, and the inability to access the funds before the maturity date without paying a surrender charge.
Should someone choose to cash out an endowment insurance policy early, the insurance company will reduce the amount of the payout, and may charge additional fees. The less time left on the contract, the more money will be made available, but the full face value of the policy will not be accessible. For this reason, endowment insurance policies are usually recommended to people who have access to liquidity, with a mixture of investments which will ensure that they do not need to cash out the insurance policy before it matures.