What is 'Accelerative Endowment'

An accelerative endowment is an option in a whole life insurance policy to use accumulated dividends to convert the policy into an endowment policy prior to its normal maturity date. An endowment policy provides for a lump sum payment to the insured after a certain period.

BREAKING DOWN 'Accelerative Endowment'

An accelerative endowment is a form of an accelerated option that allows policyholders to access the value of their life insurance policies prior to death. The main benefit of accelerative endowments is that they give policyholders the option to receive a lump sum of money before their death. This is different from other life insurance options that only provide benefits upon the death of the insured. The lump sum allows the insured to make more investments or later earn a fixed income through the purchase an annuity policy. Or the lump sum received can be invested any way a policyholder wants.

An accelerative endowment allows dividend accumulations to be applied to convert a whole life insurance policy into an endowment or to shorten the endowment term. An endowment life insurance policy will grow in value over a time period that you select, such as 18 years, and pay out a lump sum on a specified date at the end of that time period – the maturity date. An accelerative endowment can move that payment date up to immediately.

The primary purpose of an endowment policy is to build cash value. In addition, an endowment policy provides life insurance protection for the term – the time period – of the policy. If death should occur before the policy matures, a benefit is paid for the full coverage amount. The amount paid at maturity or as a death benefit is the same amount.

Accelerative Endowment vs. Whole Life Insurance

With accelerative endowments, benefits are paid as a living benefit. Whole life insurance is designed to cover the individual death and encourage him to savings, and death benefits are paid on death (in full) up to age 100 or 120.

If the insured lives longer than the period covered by the particular insurance, the cash value is paid out to the insured. In some cases, when the contract allows, the part of the money which has been invested can also be used to borrow money against. The part of installments which are invested may generate earnings, which (depending on the country's policy) can be tax-deferred if the insurance policy is cashed in during the life of the insured.

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