What is an endowment policy?

An endowment policy is designed to pay out a lump sum either at the end of a specified term or upon the death of the policyholder before that term concludes. This dual feature is what distinguishes endowment policies from other types of life insurance products. Essentially, the policy acts not only as a death benefit but also as a savings or investment vehicle that provides a guaranteed payout after a certain period.

This type of policy is often used for specific financial goals, such as funding a child's education or accumulating savings for retirement. The guarantee of a payout at a predetermined time can provide policyholders with added financial security, as they are assured of receiving the benefit either through survival to the end of the term or through the policy's death benefit.

The other choices do not capture the full scope of what an endowment policy is. For instance, the description of a short-term insurance covering specific events does not align with the endowment policy's primary features. Likewise, while a permanent policy with a cash value does exist, it typically refers to whole life or universal life insurance, rather than focusing on the specific payout conditions of an endowment policy. Lastly, the notion of a policy exclusively for children does not relate to endowment policies, as these can be issued to