3.5.1 Endowment Premiums
Premiums generally are payable from the date of issue until the date of maturity, or they may be limited to fewer years or even to a single lump sum payment. With the way in which endowments combine savings with insurance, policies may be used to provide funding for college education, mortgage payments or retirement purposes.
Endowment policies can also be compared to level term insurance. The combination of level term insurance and endowment insurance together provide the guarantees endowment contracts offer. Endowment policies are always the most expensive and build cash values the fastest.
Endowment insurance is designed to pay out the death benefit when the insured dies during the term of the policy or survives at the end of the policy term (therein the reference to term insurance). It combines insurance protection with a fixed maturity date (or term) with a savings plan for the policyowner. Typical maturities are ten, fifteen, twenty years up to a certain age limit.
There are a few drawbacks, however, to endowment policies that contribute to the decline of endowment sales. This type of policy lost popularity when competitors began paying higher interest rates in the 1970s and early '80s. Even though endowment policies are similar, they technically do not meet the definition of "life insurance" for tax purposes, and as such are not privy to the same favorable tax treatments. Premium payments on endowments are higher because a large cash value is built up in a comparatively short time and could be considered investment policies rather than insurance policies.
