american express business travel: Life Insurance Endowment Policy

Friday, March 16, 2012

Life Insurance Endowment Policy - Understanding the Basics of ...

A life insurance endowment policy is unique in the fact that it is intended to pay out a lump sum after your investment has been given time to mature rather than solely upon the death of the policyholder. An endowment policy is typically set up on a specified contract much like term life insurance or dependent life coverage when you must keep your money in the investment in order to gain full benefits. There are circumstances where you may cash in a life insurance endowment policy early but this often means you will not receive the entire sum you were promised at the beginning of the contract.

Endowment Policy Types

A life insurance endowment policy can be set up in a variety of different ways depending on how you want your benefits to be received. The most common way to set up an endowment policy is to have a sum assured on your life insurance which is guaranteed to be paid. You can increase or decrease this amount depending on how well your investments are performing. You can also set your life insurance to receive a terminal bonus when the policyholder passes away which is not guaranteed and will be adjusted for market value reduction in times of economic stress.

There are several life insurance endowment policy sub-categories that you can use to set up your policy as well. A low cost policy is set up with a target amount for your investments to reach throughout the length of the contract. This includes a minimum payment to be paid at the time of death and decreasing life insurance benefits as you come closer to reaching the target amount. This type of account is typically used to pay off mortgages or other bills that decrease over time.

A unit-linked life insurance endowment policy included investments are mainly set in a fund that is used to pay the cost of the life insurance. The policyholder then determines where to invest the rest of their premiums in order for the plan to continue to generate revenue. The earnings of your endowment will be published and given to you each year so you can keep track of your investments. The current value of your plan is the value of the various investments that are included in the contract, which will grow each year if you have invested wisely.

In the United States you are allowed to you a life insurance endowment policy as a tax shelter. This is often known as a modified endowment policy. These policies typically follow similar rules to an IRA, where you must reach a certain age before you can access your investments without penalty. You must also keep your premiums below a certain level in order to avoid tax penalties on your investments or payout which can be a bonus because any life insurance contract you have that falls within these guidelines can be changed and redefined as a modified endowment if you would like to begin investing.

A traded life insurance endowment policy is a second hand plan you have purchased from someone else either because they could not pay or it is being surrendered by the holding company. When you purchase this investment plan all beneficiary rights transfer over to you so you do not have to worry about the beneficiaries set up by the previous owner having a stake in your investments. You will be responsible for making all premium payments and making any permitted changes to the investments until the contract matures or you pass away.

Cashing In Early

There are times when it will be necessary to cash in a life insurance endowment policy early, though the benefits you receive at this point will greatly depend on how your original investment was set up. If you had a critical illness clause included in your contract then you may cash in the contract to pay for medical care. You can also cash in early if your investments are not growing in a way that you need, the policyholder passes away or you can no longer afford premium payments but in these cases you cannot expect to receive more than the guaranteed amount in your contract.

If you have investments with your life insurance endowment policy then you may lose the tax benefits that were included in your original contract if you cash in the contract before its maturity date. You will need to read the contract you signed up with carefully so you are aware of what these rules are and what fees you will need to pay should you choose to terminate your plan early. You may find it will actually save you money if you can afford to keep paying on your contract rather than surrendering it before it has completed.

YOUR OFFICIAL SOURCE FOR TERM LIFE INSURANCE

Benefits of Term Life Insurance

Long-term financial safety
Coverage for any final expenses
Significant death benefit

Our Commitment

We are committed to helping you make term life insurance shopping simple, fast, and convenient. We will empower you with decision making tools so that you can decide which product is best for you.