One thing you need to understand about life insurance policies is that they are cut out to meet specific needs and requirements. That also means you will be able to determine the best choice if you have laid out what you actually need.
Do you Need Endowment Life Insurance?
Before you answer the question above, you should first try to learn what is endowment life insurance all about.
This type of insurance is made to answer people’s needs to have a form of savings instead of simply paying up for one’s final expenses. This way you can be sure that you will not outlive your money.
You pay an endowment life insurance on a limited payment scheme. You pay for it for a shorter period of time than you would with a whole life insurance policy. If you die while you are still making premium payments, your named beneficiary would receive the face value of your policy. If you are still alive after you have completed the payment of premiums, you will be paid the maturity face value and you will no longer be covered because at this point, the policy endows.
The Pros and Cons
It is also helpful that you lay out the pros and cons, the advantages and disadvantages, of a specific insurance policy choice so you will be guided well in the process of making the decision. In this case, let us talk about the benefits and drawbacks of endowment life insurance.
ProsOn the good side, endowment life insurance is one of those types that amazingly combine insurance with savings. You will be able to save some money from the premiums you pay. They do not just all go to your insurance. Since you have savings in store, you can use it anytime the need arise. You can use up your savings to pay up for a loan or even for your college education.
Another good thing about this type of insurance is that it is risk free. Unlike whole life term policies, this does not have investment risks because the ‘savings’ are classified as savings and not as investment in the form of bonds or stocks. It also does not have an interest rate risk.
Also, you do not need to go through a medical examination to avail of an endowment life insurance policy. You could qualify for it even with the presence of a medical condition, considering you are below 50 and you are not applying for as much as $100,000 in coverage.
On the other side of the coin, there is the fact that endowment life insurance policies make significant low returns as compared to those policies with high investment risk and high interest risk factor. Your savings are taxable so you cannot expect to get very good returns or expect it to keep up with inflation either.
An endowment life insurance is a good option but lo and behold, there are better options available – whether you are thinking about just insurance coverage or savings and investment. Since this does not offer you enough insurance or enough savings, you should think twice about getting this. Other insurance policies, even with some risks involved, could give your money a greater value.
Another thing that should make you think twice about an endowment life is that the policy can easily lapse if you do not pay your premiums in full. It also does not provide protection for any bad spending decision you might make. If you use your savings to pay up your loan, your benefit can be reduced significantly.