Did you know that there are still lots of endowments in existence and that the endowment is a life insurance oxymoron?
An oxymoron combines contradictory terms, and so too does the endowment. Endowments are typically comprised of the two components of permanent life insurance—the first being the protection component and second being the cash accumulation component. However because endowments expire at a predetermined age, say 20 years after the date of purchase or age 55, 60, 65 or 85 they then are exactly like term insurance because the tax free death benefit disappears.
When the life insurance protection expires, the policy “matures” and the owner of the policy typically receives the amount of what was the insurance protection in cash (unless the policy allows for the purchase of an annuity).
When the maturity value is taken as a lump sum in cash, there is a policy gains tax (not capital gains) payable at the tax payer’s marginal tax rate.
Expired insurance coverage, cash in hand and increased taxes will be your client’s situation when their endowments mature. With increased life expectancy, sluggish economies and age 60 now being the new 40, your clients need your help to make sure they have the right amount of life insurance coverage they need—for as long as they need it!