An endowment policy pays out a lump sum at maturity or death, with payment terms varying from 10-20 years or a specific age limit. Different formats exist, with the unit-bound structure being popular. The policy aims to provide financial benefits to a beneficiary and may include a sum insured and bonuses. Early payment is possible if the insured party dies before full expiration, but certain causes of death may be denied.
An endowment policy is a type of life insurance plan that is structured to pay out a lump sum once the policy reaches maturity, or if the insured party dies at some point before the policy reaches full maturity. The payment terms can vary a bit, since the maturity term can be between ten and twenty years, or set at a specific age limit. The coverage may also restrict payment based on the cause of death, limiting the terms to problems such as accidents or critical illnesses that were not diagnosed at the time the insurance contract was initiated.
There are different formats that can be used for an endowment policy. One of the most popular approaches is known as the unit-bound structure. With this approach, there are provisions for charging in the policy before the due date is reached. The provisions describe the process for determining the value of the policy at the time withdrawal is requested. Typically, the formula involves considering the amount of time the coverage has been in force, as well as the amount of cash that has been paid into the policy as of the date of the cash-out request.
The essential purpose of any type of endowment policy is to provide financial benefits to a beneficiary once the contract reaches maturity. Most will include a figure known as the sum insured. This is the minimum amount that the beneficiary will receive once the expiration terms have been met. Depending on the performance of the investments associated with the policy, the beneficiary may receive additional benefits, assuming that the investments were made above par and that a portion of those gains were applied as bonuses to the value of the policy. With most formats for an endowment policy, bonuses are only taken into account if the contract remains in effect until the expiration date is reached.
As with other types of insurance plans, an endowment policy includes provisions for early payment in the event the covered party dies before the contract reaches full expiration. It is not unusual for certain causes of death to be denied, preventing the policy from paying out. For example, coverage may be considered null and void if the insured party commits suicide or if death is due to a medical condition that was diagnosed and documented prior to policy inception. In the event that it is proven that the beneficiary was responsible for the death of the insured, he will not receive any proceeds from the policy.
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