Endowment Policy

Example

“Sarah purchased a 20-year endowment policy that will pay $100,000 either when she turns 65 or to her beneficiaries if she dies before then.”

Memory Tip

Remember 'endow' means to give a gift - an endowment policy gives you a guaranteed gift of money whether you live or die during the term.

Why It Matters

Endowment policies provide financial security by guaranteeing a payout for specific life goals like retirement, children's education, or mortgage payoff. They offer peace of mind knowing your family is protected if you die early, while also building wealth if you live to see the policy mature.

Common Misconception

People often think endowment policies offer the best of both worlds - insurance and investment - but they typically provide lower returns than dedicated investment accounts and higher costs than term life insurance. Many financial advisors recommend 'buying term and investing the difference' instead.

In Practice

Mike buys a 15-year endowment policy with a $200,000 face value, paying $800 monthly premiums totaling $144,000 over the term. If he dies in year 10, his beneficiaries receive the full $200,000. If he survives all 15 years, he receives the $200,000 maturity benefit, essentially earning a 2.2% annual return on his premium payments while having life insurance protection throughout the period.

Etymology

From the Old French 'endouer' meaning 'to provide with a dower or gift.' The term entered insurance vocabulary in the 18th century when early insurers began offering policies that provided both death benefits and living benefits.

Common Misspellings

Related Terms

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Other insurance terms you should know

See Also