Life insurance is a virtual staple of Western financial planning, where the rising costs of college education, unpredictably fluctuating mortgages, and a plethora of other social considerations can leave parents scurrying frantically for some kind of security for their offspring. Just 20 or so years ago, the endowment policy was en vogue, and sought to quell these many fears. Why, then, have they declined in recent years (although it is important to note, more so in the U.S. than in the U.K., where procurement of such policies is still going fairly strong)? Clearly, they have some value as an investment vehicle, due to their rising popularity in India, Malaysia and a few other places, which tells us that they are an inherently worthwhile investment to investigate.
First of all, be aware that an endowment policy is a type of life insurance policy, after all. Just like life insurance, it can have a principal, or total, value of $250,000 (for example). However, unlike the term policy and whole life policy, the actual buyer can ultimately get this principal; basically, the difference is that you don't have to die in order for the money to be paid out. While this is beneficial to the policy holder, it might not quite be all that useful to her family, which explains the decline of endowment policies in general - in part.
A few other things to note:
1 - If the endowment policy holder does die, then the $250,000 is paid out to the beneficiary as specified by the deceased. Obviously, if she is still alive when the ten, fifteen, twenty or more year term of the policy expires, then she gets the full amount. Of course, because of the nature of endowment policies, if she survives the full term, then it was little more than a glorified (albeit justifiably, due to the higher interest rate of return) savings account.
2 - The above is a major reason why people have moved towards the life insurance policy in recent years. With social security, the Endowment Policy establisher isn't terribly concerned about cashing in on her own policy, but rather, allowing her heirs a measure of security in the event of her death, untimely or otherwise. Since one of the options of the endowment policy covers this scenario, it is essentially identical to a life insurance policy, which is why more people go for them today. Additionally, with a life insurance policy, you get the same service as the endowment policy option, but a lower price to start, which is the deal-breaker. In conclusion, then, life insurance is geared entirely towards the security of offspring, whereas the Endowment Policy (which costs more regardless) has this as just an option. The initial purchaser need not expire in order to claim the full value of the bond; unlike term life insurance, your ability to purchase an endowment policy is independent of statistical occurrences such as family history of early death. You set the term of the policy from the get-go, whether it is for 5 years or for 20.
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