Posted by admin On December 24th 2020
A non-profit endowment assures a fixed sum, which is then payable on maturity (when the agreed policy term ends) or upon earlier death; premiums are fixed for the term.
Establishing and maintaining a non-profit endowment fund can be a vital part of ensuring sustainability of a non-profit organisation. An endowment policy involves the investment of a sum of money (known as a corpus) and the corpus may not be drawn down at a future interval except in special circumstances, but various dividends and interest earned can be used for operational purposes.
Because this return is fixed and guaranteed, the policyholder is protected from losses due to unpredictable fluctuating stock market movements; but they are unable to share in any profits the company might make over and above those allowed for in calculating the premium rate (which is why it is referred to as non-profit). For that reason, non-profit policies are rarely used today.
There are subtle differences among endowments, whoch have legal and management implications. The types of funds can be broken down into three basic categories:
Endowments differ from non-profit reserve funds, which are savings used to fill holes in budgets, but are not restricted as to how and when they can be spent by a board or donor.
In an endowment, you will find that some or all of the money is restricted, and they are typically started by setting up a trust fund, gift or some sort of written document with the intention of gifting the fund to the beneficiary.
The founding document, such as the trust fund, will contain and list any restrictions laid out by the donor. If this is not the case, then the person must refer to the law set out by the state.