What is an endowment policy?
An endowment policy is a major part of life insurance in which a contract is prepared or designed to pay a specified amount of money after a specified term or in case of an earlier death of the policy holder. Typical maturities of endowment policy are ten, fifteen or twenty years up to a specific age limit. But, some endowment policies are also paid out against the case of severe illness or some health issues.
Overview of endowment policy:
Endowment policies can be cashed in earlier stage. It is called surrender. In this case, the policy holder receives the surrender amount which is determined by the insurer or the insurance company depending on the period or how long the policy has been running. It also depends on the policy amount that is left.
During adverse investment conditions, the surrender value or encashment value may be cut down by a 'Market Value Adjuster'. This means that the policy holder or investor would receive the entire surrender value with a low cost or less than the market value adjuster.
Different types of Endowment policy:
The various types of endowment policy include-
- Unit-linked endowment: It is a major category of endowment policy. In this kind of investment, the insurance premium is endowed in several units of a specified unitized insurance fund. Moreover, the insurance holders can often select the funds where they want to invest their premiums.
- Full endowment: A full endowment one of the major categories of the endowment policy. It is basically a with-profits endowment in which the basic amount ensured is equivalent to the death benefit from the beginning of the policy. Later, assuming the expansion or growth, the final payout or return would be much higher than the initial sum.
- Low cost endowment (LCE): A low cost endowment is a blend of a particular investment where an expected future growth rate will meet up a target amount and a declining life insurance component to make sure that the entire target amount will be paid as a minimum if any accident occurs (any kind of physical illness or death).
- Traded endowment: These endowment policies are also called second hand endowment policies.