Policies Classified According to the Inclusion or Exclusion of a Pure Endowment Feature

A pure endowment is a contract which promises to pay to the holder thereof a stated sum of money if he be living at the end of a specified period, nothing being paid in case of prior death. Term insurance, on the contrary, consists of a promise to pay a stated sum in case of death during the given period, nothing being paid in case of survival. The two promises are, therefore, exactly opposite in their nature. They may, however, be combined in the same contract, in which case the policy goes under the name of "endowment insurance". Thus a $1,000 twenty-year endowment policy may be regarded as a combination of twenty-year term insurance for $1,000 and a twenty-year pure endowment for an equal amount. In other words the policy assures the holder that he will receive $1,000 whenever death may occur during the twenty-year term; likewise that he will receive $1,000 in case he outlives the said twenty-year period.

In either case the policyholder receives $1,000, the payment at death being provided for under the term insurance feature of the endowment contract, and the payment upon survival being provided for under the pure endowment.

The mathematical premium for endowment insurance represents the sum of the premiums for the term insurance and for the pure endowment. The premium paid at a given age will be higher for short- than for long-term endowments because the company must collect a sufficient amount of money so that together with compound interest it will have the face value of the policy at the end of the term. Such policies have become very popular during the past twenty years, and now represent a very considerable proportion of the total life insurance written. They may cover any stipulated period, such as ten, fifteen, twenty, thirty, and forty years. In Great Britain the tendency has been towards the selection of the longer terms, while in America the twenty-year period seems to have proved the most popular, although various companies are now strongly urging the long-term period with a view to having the policy, by making it mature at such ages as 60 or 65, afford a convenient combination of life-insurance protection with provision for old age. Their contention is that a whole-life policy is an endowment policy maturing at age 96, according to the American Experience table, and that by the payment of a slightly higher premium, or by leaving all dividend accumulations with the company, the policy should be made to mature at a more logical age, such as 60 or 65. Premiums are usually paid on the level plan throughout the life of the contract. Often, however, long-term endowments for periods like thirty or thirty-five years are paid for on the limited-payment plan, the premiums, for example, being paid during the first ten or fifteen years, although the face of the policy is not payable until, say, twenty years after premium payments have ceased.

Many types of endowment policies are issued in addition to the ordinary form which promises a stipulated amount in the event of either death or survival. Thus there may be "double endowments", in which case the pure endowment equals twice the sum of the amount that will be paid in the form of term insurance in case of death, or "semi-endowments", where the pure endowment equals one-half the amount paid upon death. Various special types of so-called "child endowment policies" are also issued. Sometimes these policies provide merely for the return in full of all the premiums paid in the event of the child's death; the face of the policy being paid only upon the child surviving a fixed age. Policies of this character are not life-insurance contracts in the true sense, but have for their purpose the accumulation of a fund for business or educational purposes upon the child attaining a specified age. In other instances a smaller premium may be charged because only the payment of a pure endowment is promised, there being no return of the premiums in the event of the child's death during the specified term. Again, it may be provided that upon the death of the purchaser of a child's endowment policy, usually the father or some other near relative, all premium payments shall cease, the policy becoming full-paid and the principal becoming due when the child reaches a specified age. It may be added that until recently various companies also extended the pure-endowment feature to the payment of dividends on various types of contracts. This was done under the so-called "tontine plan", whereby the dividends were paid only at the end of a certain number of years, such as ten, fifteen, or twenty years, provided the policyholder was living at that time, these dividends, however, being forfeited in case of death before the expiration of the indicated number of years.