Annuities Vs. Endowment

An orange safety ring sitting on the water's edge.
Image Credit: KaeArt/iStock/Getty Images

An annuity and an endowment have several properties in common but they are distinctly different products. Both of these are the creation of insurance companies and both focus on the aspect of saving money.

Death Benefit

An endowment is a life insurance policy with cash value and an annuity is a savings vehicle. Even though you have a savings aspect in an endowment policy, you also have a death benefit. If your family needs a specific amount of money by a certain date, the endowment pays it whether you live or die. The annuity simply pays your heirs the amount you put into the policy plus any return you made on the funds.

Growth

The cash value in most annuities grows much faster than the cash in an endowment plan. The reason is simple: there is no cost of insurance to pay on the annuity.

Resale

There's a large market for the resale of the endowment policies in several countries. This isn't true of annuities. Often investors pay more than the owner would receive if he cashed out the policy.

Variety

Annuities offer more types of investments than endowments. Endowments are all guaranteed and use only fixed investments.

Maturity

Endowments have a specific maturity date. Annuities run until you decide to cash them out, or reach 99 years of age.

Popularity

Most people feel that the combination of an annuity and term life insurance fills their needs far better than an endowment policy. The cash and insurance coverage is often higher on both. Endowment policies are now rarely sold in the United States.

references & resources