Definition - What does Pure Endowment mean?
A pure endowment is a type of life insurance policy in which an insurance company agrees to pay the insured a certain amount of money if the insured is still alive at the end of a specific time period. These payments are usually made as a lump sum.
Unlike a more traditional life insurance policy, there are no beneficiaries to a pure endowment, meaning that no benefits will be paid out by the insurance company if the insured is not alive by the end of the endowment’s policy period.
In order to claim the payment from the insurance company, the insured must continue to pay premium payments and survive past some future date as specified on the policy. Therefore, this is not a true life insurance policy.
As such, pure endowment policies are typically illegal according to your jurisdiction’s life insurance regulations unless it is combined with some form of traditional life insurance policy that pays out to beneficiaries when the insured dies.
The most common scenario you will see a pure endowment policy is attached to some type of term insurance policy. In these use cases, the insured would get some money back—typically an amount equal to what they paid in premiums—if they outlive the fixed term of the policy.
A pure endowment is also referred to as pure endowment assurance.
Insuranceopedia explains Pure Endowment
Pure endowments are commonly offered by life insurance companies. Many people use pure endowments as a means to finance expensive things, such as a child's college education (college savings plan) or wedding. The policyholder gets to pick their monthly payment and maturity date. Upon maturity of the policy, if the holder is still alive, they would receive a guaranteed endowment based on the monthly contribution amount.
Depending on your jurisdiction, pure endowment policies may be illegal because they are not true life insurance contracts. Another common use case for pure endowment contracts is in conjunction with another life insurance policy such as a term policy as a return of premium mechanism and to skirt concerns around legality. You can also commonly see these used to add a savings component to a term life insurance policy.
In this context, the pure endowment is used to return a sum of money should the insured survive until the term life insurance policy matures. The sum paid is typically equal to the amount paid in premiums over the life of the term policy. This is a very common use case because it helps life insurers reduce the perceived risk prospective customers may have about outliving their term life insurance policy and “wasting” their money.
Pure endowments are different from other types of life insurance policies because no benefits will be paid out if the insured dies before the policy matures. As a result, no beneficiaries need to be listed on a standalone pure endowment policy. In other types of endowment policies, the benefits are passed on to beneficiaries if the policyholder is no longer alive to receive it.