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Endowment Policies

In the years before most people had the casual relationships with banks that exist today, it was not uncommon for families to combine savings and insurance into a single package with the goal of a specified amount of money at a specific future date. This savings package is called an endowment policy. It is not very common these days.

However, with the variety of modern products available and the societal changes, they do not usually have a specific date in mind for the monies to be available.

Most endowment policies are designed to mature at age 95 or 100 but since the cash values may be used at the owner's convenience many will never truly endow.

Endowment policies were often used to save for college money or a down payment on a home with the funds available by a certain date. Many endowment policyholders had no pension plans or retirement savings, so endowments to age 65 were common. In the event the insured died, the beneficiary received the amount that the insured intended to have at age 65.

An endowment policy provides benefits in one of two ways:

• As a death benefit to a beneficiary if the insured dies within the specified policy period (endowment period); or
• As a living benefit to the policy owner at the end of the endowment period or at maturity.

After the IRS ruling that new life insurance policies could no longer enjoy all the traditional tax advantages of the cash values if they endowed prior to the insured's age 95, the Endowment policy lost its tax-deferred interest- free advantage over savings accounts.

It then became a plan with questionable death benefit value due to the high premiums and no advantage for savings as the mortality charges dissipated the savings edge.

The following question is a review of the content on this page. Answer it and then click below to check your response.

Why are insured savings accounts (Endowment Policies) no longer common? Because the tax advantages were diminished by ___ Rulings.