Endowment and whole life insurance are both types of insurance policies with many benefits. In this article, we will discuss how endowment and whole life insurance policies work and the differences between the two.
Whole of Life
Whole life is a type of permanent insurance policy where the premium remains constant for your lifetime. With an endowment, you can either pay premiums yearly or make one large upfront payment for a specific term length of time which typically lasts from 10 to 20 years. Once this term is up, you can choose to stop paying premiums, but the policy will expire unless you start paying the monthly premiums again.
An endowment insurance policy is a type of insurance that has a specific cash value and does not usually last your entire lifetime. This type of policy involves your making periodic payments on an annual basis. The number of times you must make payments depends on the length of your agreement, with the most common time being 10 years or until the death or permanent disability of the insured party. At this point, the insurance company will pay out a predetermined amount of money to your beneficiaries.
Aside from how you pay premiums, there are many other differences between the two types of insurance policies.
1. They are regulated differently.
Whole life is considered an investment product and is therefore regulated by the Securities & Exchange Commission (SEC). An endowment policy, on the other hand, is overseen by the Department of Insurance (DOI).
2. Their purpose is different.
Whole life insurance policies are meant to provide an income for your beneficiaries upon your death. Endowment policies are meant to provide for a future event that can either be permanent disability or death. If either of those events occurs, the policy will pay out a predetermined amount of money to your beneficiaries.
3. Long-term care is covered differently under each policy.
Whole life policies have a rider that helps pay for long-term care. An endowment insurance policy does not offer this benefit unless the individual chooses to purchase it separately.
4. They are priced differently.
Whole life policies have a cash value, which causes them to be more expensive than an endowment policy, which does not have a cash value and is, therefore, less expensive than a whole life policy.
5. They have different purchase agreements.
Endowment policies are custom designed for their customers, while whole life policies are available online in some different purchase agreements.
6. Their benefits are different.
With an endowment policy, the premiums go toward a specific beneficiary who is designated by you. With a whole-life policy, the premiums go to whoever you designate as your beneficiary should you die or become permanently disabled.
7. They have different surrender and cancellation clauses.
An endowment policy has a surrender clause that requires the policyholder to pay off the whole life policy within five years or surrender it to receive its cash value – whichever comes first. With a whole-life policy, the premiums go to your beneficiaries upon your death or permanent disability. Given this difference, an endowment policy can be reconsidered when one party is no longer able to make payments and the other party is not needed for financial security anymore.
Endowment and whole life insurance policies are two different types of insurance policies. Each offers its benefits and protections, but it is important to carefully compare the terms of both types of insurance before making a decision.
These two articles have provided you with some insight into how endowment and whole life insurance work. As always, remember that it is important to discuss any financial decision with your insurance adviser before making a final selection.