Endowment insurance - Do you get a good return on maturity?

Submitted by joven222 on Tue, 06/17/2008 - 17:39

I have seen many types of life insurance in this community including those that I have not heard of before. But I think no one has talked about life endowment insurance. Are you also selling endowment insurance plans? What is much easier to sell? Endowment life insurance or a permanent life insurance? Endowment plans are insurance plans that pay lump some on a specific time of maturity. This can be a good way to save money. What do you think?

Posted: 23 Jun 2008 09:01 Post Subject:

I agree with you joven. An endowment insurance plan is a very good option to build a saving, especially, for people with limited fund to invest in the market. Also, it offers protection to people who are in dire need of protecting their dependents after their death.

IMO the agents should also concentrate in promoting this form of policies, as it may successfully cater to the insurance needs of the middle level income people.

Posted: 23 Jun 2008 09:20 Post Subject:

Endowment insurance plans definitely are better than other forms of traditional life plans like- the term life plan, which is only good in some special cases. The endowment plan is the actual life insurance plan, that offers insurance coverage to the policy holder. The policy holder receives a certain amount as maturity value at the end of the policy term, if he survives through its tenure. Otherwise, the beneficiary receives the death benefit along with the return on the policy.

With the development of the unit linked plans, an endowment plan's popularity has certainly diminished, as more importance is given to the returns earned by the policy and less concentrations on life coverage, but its demand certainly exists.

However, I can only share my opinion from a customer's point of view, but would certainly love to hear what the expert agents have to say in this matter.

Posted: 23 Jun 2008 10:38 Post Subject:

I guess agents prefer to sell term life policies as it costs less to the customer, hence easier to pitch. People who can't afford the cost of insurance but still wants to purchase some coverages, are the easy customers for term life.

On the other hand, endowment and whole life both are bit more expensive than the term life plans. Hence, out of the reach of the limited income people.

However, from a customer's point of view, I'd rather vote for an endowment plan over the other forms of life policies. The endowment plan offers you a maturity value. So, you can actually reap the fruit of your savings, which IMO is the greatest advantage of an endowment plan.

Keith_the_handsome

Posted: 23 Jun 2008 10:54 Post Subject: insurance

Life Insurance is so important, ....reguardless of 'income status'. I've spoken to different insurance companies, whom I have discussed different Life Insurance plans. I think the thing that 'gets me', however, is when the insurance companies talk to you about your options and what options have what benefits,THEN you decide on which Life Insurance plan you want to take, they say, "well..don't you think it's more 'practical' for you to take THIS one instead of THAT one." ( Speaking toward the PRICE of the insurance policy). Shouldn't the decsion be up to ME, what benefits I choose to buy, instead of the insurance company looking at what "might be best for me" because of my income? If I COULDN'T afford certain plans, i wouldn't be looking at them.

Posted: 23 Jun 2008 10:31 Post Subject:

A quick review of the Life Insurance Guides section will show why endowments are not a very good deal (in America). Tax reform and investment legislation has all but completely stripped the benefits of owning an endowment.

Posted: 24 Jun 2008 10:59 Post Subject: insurance

I haven't had a chance to go to your website, INVESTIGATOR..but, I soon will.

Posted: 24 Jun 2008 03:58 Post Subject:

You don't need to go to my website, just scroll upwards, select "Guides" and go to the Life Insurance section. It's all right there.

Posted: 25 Jun 2008 08:55 Post Subject: insurance

I sure will do that. Thanks for the advice.

Posted: 11 Jul 2008 05:32 Post Subject:

A quick review of the Life Insurance Guides section will show why endowments are not a very good deal (in America). Tax reform and investment legislation has all but completely stripped the benefits of owning an endowment.



Thanks for this idea. Now I know why there are no people talking about endowment life insurance.

Here is the link to what InsInvestigator wants to tell us. http://www.ampminsure.org/insinvestigator/endowment.html

Endowments are generally not sold today due to the tax changes enacted in the 1980s that eliminated many of the benefits that once made them so attractive as investment vehicles.

Posted: 20 Jul 2008 01:27 Post Subject:

I think endowment insurance plans are offered by very few insurers now. I can't recall seeing any in Canada sold since I have been in the business (abouty ten years),

I served some clients who had endowments and they were disappointed with the results. the face value looked big 40 years prior when they bought it but the endowment now is paltry. Others wished they could keep it as insurance but had to take the money.

An endowment can be acheived through a well designed UL policy. Sometimes it can be arranged to borrow money from a bank against the death benefit. The tax treatment can be quite favorable doing this. It requires careful planning to acheive the desired result.

Anyhow, endowments are okay in my opinion. But the industry is shying away from the traditional plans like this.

Posted: 05 Aug 2008 04:02 Post Subject:

Thanks for the tips. I am planning to get an endowment plan after I have paid my other life insurance policy. I have only 1 year left. I will think about it if I would get an endowment plan or just a plain life insurance protection..

Posted: 06 Aug 2008 03:08 Post Subject:

What is much easier to sell? Endowment life insurance or a permanent life insurance?



Just a comment on this quote from the original post: it really shouldn't matter what is easier to sell! What matters is what fits the need best.

Joven, what need are you trying to fill with an endowment? As InsuranceInvestigator stated they are declining in popularity due to changes in legislation.

Posted: 23 Aug 2008 04:53 Post Subject:

Hi Ontario Broker,

Thanks for reminding me.

it really shouldn't matter what is easier to sell! What matters is what fits the need best.

.

Yeah, I guess I first need to qualify my need before getting a new policy. Thanks guys.

Posted: 26 Aug 2008 05:26 Post Subject:

Endowment insurance was popular in the past due to its substantial savings elements.

In addition to that, people back then (60s or 70s) did not have much knowledge about ways how to invest their money. Therefore endowment was attractive because of its return.

With the introduction of unit-linked products and more people become savvy about investment, endowment has lost its popularity.

Endowment insurance may still appeal to people who are conservative and careful with their money or who are not comfortable to place their money in stock market through the purchase of unit-linked products.

Essentially I am still of the opinion, protection comes first before investment or savings. From the financial planning point of view, we need to first address the needs of income protection only then we focus on wealth accumulation

Posted: 26 Aug 2008 06:11 Post Subject:

In addition to that, people back then (60s or 70s) did not have much knowledge about ways how to invest their money. Therefore endowment was attractive because of its return.



Add to this that there were not many options available for investments as well. The two most popular forms of insurance plans available that time were the traditional term life plans and the endowment plans.

Its true that against the term life plans, which doesn't offer any return other than the death benefits, endowment plans were a better options for the people. The returns too looked attractive because it was calculated on the then price index, and hasn't taken the inflation rate into consideration, which has exploded since then.

~jeremy

Posted: 26 Aug 2008 07:01 Post Subject:

Yeah, I guess I first need to qualify my need before getting a new policy. Thanks guys.



That's just the right approach.

I believe that the customer should always purchase a plan that suits his needs best. However, I've seen many to believe what other say and follow the trend. I guess, that's another reason why the endowments plans have lost their popularity.

Universal plans and equity indexed plans are now in trend. Most of the policy holders feel that they will be better off by purchasing what is current in the market and don't evaluate their needs much.

Universal plans are good for investment purpose, but it may not always be the right option for people who have their families' interest to preserve.

Thanks,
Rupert

Posted: 21 Nov 2009 11:43 Post Subject: NZKbKj

Hi! gntTQvtO

Posted: 30 Nov 2009 08:20 Post Subject:

I agree completely with InsInvestigator. The Tax Reform Act of 1986, as amended, has, unintentionally, all but made endowments one of the most unfavorable uses of insurance through the creation of previously nonexitent "modified endowment contracts" (MECs).

But, even if that were not the case, endowments are the costliest form of individual cash value life insurance on the planet. Let me give you the example I use when teaching on the subject of cash value insurance and endowments in particular.

Imagine an inflated balloon. It represents the life insurance policy -- when the insured dies, the balloon bursts and the money inside rains down on the beneficiary. When a cash value policy is first started, it is only filled with air, which represents the insurance company's liability in a death claim. Over time, the air is replaced with cash value, so some of a death claim is still air, while the rest is the owner's cash value. At some point in time, if the insured has not died, the policy will mature or "endow" (used to be age 100, with the CSO 2001 mortality tables it is now age 120/121). The balloon contains no air, and it bursts, showering the money on the policyowner -- usually the face value of the policy, possibly more, sometimes less.

An "endowment" policy, by definition, matures much earlier than age 100, such as age 65 or 70, or in a stated period of time, such as 10, 20, 30 years, regardless of age. How can that be true? One must put pressure on the balloon to accumulate money at a faster rate (more $$ in premium). Because insurance contracts pay such low internal rates of return (3%-5%), there is not much time for compounding to work, and that puts added pressure on the balloon (even more $$ in premium).

When you shorten the time to accumulate (squeeze the balloon between your hands) and then put more pressure on the accumulation due to low return on savings (squeeze the balloon even harder), it forces the balloon to expand vertically (total premium payable), but it does not change the volume inside the balloon.

Now, we're also talking about a type of life insurance, the cost of which is directly influenced by age. Endowments are usually attractive to older persons who have less time available. So the cost of insurance itself will be higher to begin with.

Typically, an endowment can be 5-7 times more expensive than a whole life policy applied for at the same age. If you don't like the thought of paying $500 per year for a $100,000 policy from now to age 120, you definitely won't like one that costs $3000 per year from now to age 65.

Endowments are available from almost any company marketing cash value policies. They just aren't very popular in the face of the tax implications. The only true benefit is the death benefit payable to a beneficiary if the insured dies before the stated endowment age.

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