What is an Endowment Policy?

An endowment policy or endowment plan is a type of life insurance policy that provides the dual benefit of investment cum insurance to the policyholder.  The policy provides coverage to the insured for a specific period, at the end of which sum assured plus the accrued bonus is paid to the insurance holder. According to the tenure of the policy, the bonus is paid to the insurance holder. Generally, endowment plans are specifically designed to offers a lump-sum benefit after a specific tenure i.e. on policy maturity. However, in case the insured person dies during the term of the policy, the beneficiary of the policy will receive the sum assured amount plus the bonus if any from the insurance company.

Why Should You Buy an Endowment Policy?

One of the main reasons to buy an endowment policy is that it provides an option to make savings in a more disciplined way so that one can fulfill their short and long-term financial needs. Moreover, along with an option to create a financial cushion the plan also provides the benefit of insurance coverage. Even though, an endowment policy offers lower returns as compared to the other investment plans but at the same time, the risk involved is also very low in an endowment plan. Apart from this, as we have mentioned above, the plan also offers an option to save on taxes on the returns.

These benefits offered by an endowment policy make it preferable for investors with low-risk appetite. Moreover, apart from death benefit offered to the beneficiary of the policy in case of insured decease, the plan also provides maturity benefit to the policyholder.

 Types of Endowment Policies

  • Without Profit Endowment Policy
  • With Profit Endowment Policy
  • Unit Linked Endowment policy
  • Full Endowment

Without Profit Endowment Policy

In without profit traditional endowment policy, a sum assured amount is paid to the policyholder as maturity benefit or to the beneficiary of the policy as a death benefit.

With Profit Endowment Policy

With profit, endowment policy assures lump-sum money to be paid at the time of death or maturity of the insurance holder. The sum assured amount of the policy increases as the insured acquires reversionary/regular bonuses. These are guaranteed bonuses that are payable to the policyholder. Apart from this, in certain cases, the policy also offers terminal bonus known as a non-guaranteed bonus that is payable to the insured at the termination of the endowment policy.

With profit, best endowment plans for individuals who want to have a regular flow of income or need to fulfill specific objective like repaying a mortgage, etc.

Unit Link Endowment Policy

A unit-linked endowment policy is a type of endowment policy wherein a part of the premium is paid for the insurance coverage and the other half of the premium amount is invested in different units of investment funds. The insured can choose the fund options for investment according to their suitability.

Full Endowment

Under this variant, the basic amount guaranteed to be payable to the policyholder is equal to the death benefit, right from the period of policy initiation. According to the speculated market-based appreciation, the ultimate payout provided is relatively higher.

How Does Endowment Plan Work?

Endowment plans are similar to regular insurance policies. An endowment plan provides life insurance coverage and an opportunity to save regularly over a specific period of time. On the maturity of the policy, the lump-sum maturity amount is provided to the insured that can be further used to accomplish the financial objectives of life like children’s education, purchasing property, retirement planning, etc.

Now that you have a brief overview of the types of endowment policies and how does it work, let’s take a look at the best endowment plans in India.

Best Endowment Plans in India 2018

Endowment Plans Age of Entry(Min-Max) Age of Maturity (Min-Max) Policy Tenure Mode of Premium payment Premium paying tenure Sum Assured

(Min-Max)

LIC New Endowment Plan 8 years- 55 years Nil-75 years 12-35 years Monthly, Quarterly, Half-yearly, Annually 12-35 years Minimum Sum assured-

Rs.1,00,000 in multiple of 5,000

Maximum Sum assured-

No Upper Limit

 

SBI Life Endowment Plan 18 years-60 years 18 years-60 years 5-30 years Monthly, Quarterly, Half-yearly, Annually 30 years Minimum Sum assured- Rs.75,000

Maximum Sum assured-

No Upper Limit

 

Reliance Life Insurance Super Endowment Plan 8 years-60 years 22 years-75 years 14-20 years Monthly, Quarterly, Half-yearly, Annually 7-10 years Minimum Sum assured-

Rs.10,000

Maximum Sum assured-

No Upper Limit

 

Kotak Classic Endowment Plan 8 years-60 years 18 years-75 years 15-30 years Monthly, Quarterly, Half-yearly, Annually 7-15 years Minimum Sum assured-

Rs.61,071

Maximum Sum assured-

No Upper Limit

 

HDFC Life Endowment Assurance Plan 18 years-60 years 18 years – 75 years 10-30 years Monthly, Quarterly, Half-yearly, Annually 10-30 years N/A
Reliance Endowment Plan 5 years-50 years 18-60 years 10-25 years Monthly, Quarterly, Half-yearly, Annually 10-25 years Minimum Sum assured-

Rs.65,261

Maximum Sum assured-

No Upper Limit

 

Bajaj Allianz Endowment Plan 1 year-60 years 18 years-75 years 15-30 years Monthly, Quarterly, Half-yearly, Annually  5 years Minimum Sum assured-

Rs.1,00,000

Maximum Sum assured-

No Upper Limit

 

Kotak Premium Endowment Plan 18years-60 years 18 years-70 years 10-30 years Monthly, Quarterly, Half-yearly, Annually 10-30 years Minimum Sum assured-

Rs.61,317

Maximum Sum assured-

No Upper Limit

 

Aegon Life Premium Endowment Plan 18 years-55 years 18 years-60 years 10 years Annually, Half-yearly,

Monthly

8 years Minimum Sum assured-

10 times of yearly premium

Maximum Sum assured-

N/A

 

Aviva Dhan Nirman Endowment Plan 4years-50 years 28 years – 75 years 18-30 years Monthly, Quarterly, Half-yearly, Annually 14-18 years Minimum Sum assured-

Rs.2,00,000

Maximum Sum assured-

Rs1,00,00,000

 

IDBI Federal Endowment Plan 18years-55 years 18-100 years Premium paying tenure+ Payout period Monthly, Quarterly, Half-yearly, Annually 12-30 years Minimum Sum assured-

Rs.10,000

Maximum Sum assured-

No Upper Limit

 

Benefits of Endowment Policy

  1. Provides the dual benefit of insurance cum investment.
  2. As a long-term systematic saving plan, an endowment policy not only provides an option to create financial cushion but also helps the insured to meet their long-term financial goals.
  3. Depending on the type of plan you choose, endowment policy can act as a good investment option for the insured.
  4. The benefit of the tax deduction is available on the premium paid and maturity proceeds under section 80C and 10(10D) of Income Tax Act.
  5. Apart from the benefits of investment and savings, the insured can take advantage of different rider benefits available under the plan like premium waiver benefit, disability, critical illness, etc.
  6. An endowment policy also provides loan facility to the insured in case of an emergency.
  7. Bonus facility is offered by the policy which is payable to the insured at the maturity of the policy.
  8. An endowment plan is a low-risk plan since it offers a guaranteed maturity benefit.

Features of Endowment Policy

Maturity Benefit

In case the insurance holder survives the entire tenure of the policy then maturity benefit is provided to the insured as the total sum assured amount along with the bonus acquired at the end of the policy tenure.

Death Benefit

In case of the insured deceased, the beneficiary of the policy receives the sum assured amount plus the bonus (if any) as death benefit by the insurance company.

Bonus Offered

With profit endowment policy offers bonus facility to the insured, wherein the bonus amount is accumulated during the entire tenure of the policy and is paid along with the maturity benefit and death benefit. The bonuses are classified as:

  • Reversionary Bonus- reversionary bonus is a non-compulsory bonus which is added by the insurance company to the sum assured amount of the insurance policy and is payable either at the maturity of the policy or in case of death of the policyholder.
  • Terminal Bonus- the terminal bonus is a return for loyalty bonus that is paid at the maturity of the policy as a reward of loyalty to the insured maintained throughout the tenure of the policy.

Rider Benefit

The policy provides add-on rider benefit to the insurance holder that can be availed along with the basic policy coverage. The different types of rider benefits offered by an endowment plans are:

Critical illness Rider- In case, the insured person is diagnosed with any critical illness like heart attack, cancer, paralysis, kidney failure, etc.  Then an extra sum assured amount is payable to the insured along with the basic sum assured of the policy.

Accidental Death- If the insured has opted for accidental death benefit rider, then in case of accidental demise of the insured person an extra sum assured amount as an accidental death benefit is paid to the beneficiary of the policy along with the basic sum assured amount.

Disability Benefit Rider- In case of total or partial disability of the insured person, a sum amount is offered as a monthly installment to the insured, equal to the basic sum assured amount.

Premium Waiver Benefit- If an insured has opted for premium waiver benefit then the premium amount is waived off for the entire tenure of the policy, in case the insured suffers from a permanent disability or critical illness.

Tax Benefit

The Plan provides an option of tax benefit on the premium paid and the maturity proceeds under section 80C and 10(10D) of Income Tax Act 1961.

Claim Settlement Ratio

It is the percentage of claim settled each financial year Vs the claim received. A high percentage of claim settlement indicated that the company has a good record of hassle-free payment to the insured nominee. While buying an endowment life insurance policy it is important that you check the insurers’ track record. A good track record of an insurance company reduces the risk factor involved in case bonus is declared on endowment policy.

How to Choose the Right Endowment Policy

However, there are different types of endowment policies available in the market; there are several aspects that should be kept in mind while choosing the right endowment policy. Let’s take a look at some of the aspects of choosing right endowment plan.

  1. Age of the insurance holder is an important aspect of buying an endowment plans. If you buy an endowment plan at an early stage of life then you can avail profitable returns on the maturity of the policy and upon regular payment.
  2. Compare the various plans online and choose the most affordable plan according to your suitability.
  3. The insurer determines the age of the policyholder based on the health status of an individual. So, if an individual is healthy then their life expectancy increases naturally. Thus, he/she can avail the endowment policy in more affordable premium rates.
  4. It is important that you make a proper background check of the insurer while buying an endowment policy so that you don’t face any problem while claim settlement.
  5. Check on the rider benefits offered by the policy, an endowment policy with more than one rider option will provide better coverage to the policyholder.
  6. Apart from all these factors, individual needs, risk appetite, and current life stage are few important factors to consider too while buying an endowment plan.
  7. While choosing an endowment policy, pick a plan which is simple to comprehend and does not comes with complicated features and benefits.

What is the Right Time to Buy Endowment Policy?

According to an individual’s financial needs, everyone wants to have a risk-free secured investment. Therefore one should buy an endowment plan to cover areas like:

  1. To provide financial protection and stability to the family.
  2. Create financial savings to fulfill the investment objectives over a long-term
  3. To achieve the financial goals of life.

However, one should consider buying an endowment plan only when he/she has a regular flow of income to make the regular payments of premium. Endowment policy should be bought keeping the long-term benefits in mind as it provides a profitable return over a long period of time.

Documents Required to Buying an Endowment Policy:

While applying for an endowment policy, the policy buyers must keep the following documents handy.

  1. Completely Filled Proposal Form/Application Form
  2. Photograph
  3. Age Proof
  4. Address/residential Proof
  5. Medical Report (if required)

Endowment Policy Vs Term Insurance:

The basic difference between an endowment policy and term insurance plan is that a term insurance plan provides death benefit whereas an endowment policy provides life coverage along with the rider benefits. In term insurance plan the claim to the beneficiary is assured in case of sudden demise of the insured person, but no claim is paid in case of survival of the insured till maturity. Whereas, an endowment policy provides both deaths as well as maturity benefit to the insured.

The premium rate of an endowment policy is more as compared to the basic term insured policy as a part of the premium amount of an endowment plan is invested in various investment instruments.

Endowment Policy Vs Money Back Policy

Generally, endowment policy and money back policy have both the components of investment and insurance. However, there are fundamental differences between both the plans. Let’s take a look at the difference between the endowment policy and money back plan.

  1. In endowment policy, the sum assured amount plus the applicable bonus amount is paid to the policyholder at the maturity of the policy. Whereas, in money back plan the insured receives a percentage of sum assured at regular intervals of time and the maturity benefit along with the applicable bonuses (if any) is paid to the insured at the maturity of the policy.
  2. In case of the policyholder demise, the death benefit as the sum assured amount along with the applicable bonus (if any) is paid to the beneficiary of the policy by both the plans.
  3. If you want to opt a plan mainly for saving purpose then investing in an endowment plan can be beneficial for you, as an endowment plan helps to accumulate savings to achieve the long-term financial goals. On the other hand, a money back plan offers a regular flow of income to an individual so that he/she can fulfill their short-term financial goals.

Endowment Policy Vs ULIPs

Endowment and ULIP plan both are investment cum insurance plan that provides life protection to the insured during the tenure of the policy and also offers returns at the end of the policy tenure. However, there is a certain difference between an endowment policy and ULIP plan. These are as following:

  1. In endowment policy, the policyholder is not given any choice of funds to invest in. Whereas, in a ULIP plan the insured have a choice to invest in various fund options according to their suitability.
  2. At the time of maturity of the policy, the insurance holder receives the sum assured amount along with the applicable bonus amount (if any). On the other hand, in ULIP plan the insured can redeem the units which are collected at the prevailing unit rates. Some plans also provide loyalty addition at the time of maturity.
  3. In endowment plan, the insured does not have an option to alter their exposure to risk. Whereas in ULIP plan, the insured have an option to switch between fund. Thus, exposure to risk is divided between the different fund options.
  4. In endowment policy, the policyholder does not have an option to track his/her individual portfolio as the premium is invested in with profit fund. Whereas, ULIP offers an option to keep a track of the insured portfolio.
  5. In endowment plan, the insured has to pay higher surrender charges to the insurer if they want to withdraw the money. However, in ULIP plan withdrawals can be made in case of emergency if the insured has continuously paid the premium for the first 3 years.

Endowment Policy Vs Whole Life Insurance

Endowment policy is a type of life insurance policy in which the premium paying tenure is shorter than the whole life insurance and the insurance amount is paid to the insured within a specific period of 10-20 years. Apart from this, the other difference between the endowment plans and whole life insurance plans are:

  1. Whole life insurance plan provides life coverage for an unspecified period of time.
  2. An endowment policy provides a death benefit and maturity benefit to the insured. But whole life insurance provides death benefit up to the age of 100 years or 120 years.
  3. In endowment plan, the premium amount per month is comparatively expensive and is paid over a short period of time. On the other hand, the premium amount of whole life insurance is higher and is paid over a long period of time.
  4. There are three different types of endowment policy: with profit, low-cost endowment plan and unit-linked endowment plan. Whole life insurance plans also have four variant limited pay, non-participating, participating and single premium policy.

What is Paid-up Endowment Policy?

If the insured has regularly paid the premium of the endowment policy for minimum 3 years then they have an option to convert their endowment plan to a paid-up endowment plan. In case, the insured is dissatisfied with the policy and does not want to surrender the policy then he/she can choose not to pay, the premium for the policy. Under the paid-up option, the policy will not lapse and continue till the maturity. However, the sum assured amount of the policy will be reduced.

Endowment Policy FAQ’s

When should I buy an endowment policy?

Ans- Every individual requires some risk-free secured investments as a part of their financial planning. Therefore, endowment plan should be bought by an individual in order to provide:

  • Financial protection for their loved ones
  • Goal-Based savings
  • Build a financial cushion to achieve the investment objectives over a long period of time.

However, it is important to keep in mind that endowment plan should be considered to buy if the insured has a steady flow of income so that he/she can pay the premiums regularly. Since endowment plans are a long-term plan, the longer the tenure of the policy will be, the better returns one can gain in long run.

What are the tax benefits offered by endowment policy?

Ans- The insured can take benefit of the tax exemptions offered by the policy on the premium paid maturity proceeds under section 80C and 10(10D) of Income Tax Act 1961.

How to surrender my endowment policy?

Ans- In case, if the insured is not satisfied with the endowment policy or if the plan does not fulfill the requirement of the insurance holder, then he/she can exit the policy before the maturity period and surrender it. The policyholder can surrender the policy if he/she has successfully completed three policy years and has dully paid the premium for 3 full policy terms. In case of surrendering an endowment policy, 30% of the premium amount is paid back to the insured and the coverage provided by the policy along with bonus will cease to exist.

What are the different types of endowment plans?

Ans- Endowment policy offers four different variants of plans-

  1. Without Profit Endowment Policy– As a traditional endowment plan, the sum assured amount is paid to the insured or beneficiary of the policy as maturity benefit and death benefit.
  2. With Profit Endowment Policy- Apart from the sum assured amount, with profit endowment plan also offers bonuses to the policyholder.
  3. Unit Linked Endowment policy– This plan offers an option to choose funds for investments to the insurance holder.
  4. Full Endowment– In this policy, the sum assured is equal to the death benefit and the final payout of the policy is relatively higher.

 What are the bonuses offered by endowment policy?

Ans- Bonuses are paid to the insured along with the sum assured amount. There are generally two types of additional bonus offered by endowment policy:

  1. Reversionary Bonus-This is a non-compulsory bonus which is added to the sum assured amount and is payable to the insured either at the maturity of the policy or in case of the death
  2. Terminal Bonus-Terminal bonus is paid at the time of maturity of the policy as loyalty benefit to the insured.
  3. What are the different types of riders offered by endowment policy?

There are different types of rider benefits offered by endowment policy:

  • Critical illness benefit
  • Premium waiver benefit
  • Accidental death benefit
  • Family income benefit
  • Hospital cash benefit
  • Partial disability benefit

Can I change the nominee of my endowment plan between the tenure of the policy?

Ans- Yes, the nominee of the policy can be changed during the policy term. In case, you want to change the beneficiary of your endowment policy, contact your insurer and they will guide you through the process to change the beneficiary name.

What to check while buying an endowment policy?

Ans- As there are a plethora of endowment policies available in the market, it is important to compare the various plans online and choose the most beneficial plan as per your requirement. Besides this, the other aspects that should be kept in mind while buying an endowment policy like your current income, your risk appetite, claim settlement ratio of the company, etc.

What are the best endowment plans available in the market?

Ans- Some of the best endowment plans available in the market are:

  • Kotak Classic Endowment Plan
  • Reliance Endowment Plan
  • Bajaj Allianz Endowment Plan
  • LIC New Endowment Plan
  • SBI Life Endowment Pan
  • HDFC Life Endowment Assurance Plan

What is endowment policy premium calculator?

Ans- A premium calculator is a specified tool which is particularly designed to calculate the required monthly premium amount in order to get the desired sum assured by the insured. The endowment policy premium calculator helps to provide various details related to the policy like maturity value, premium amount, loan value, surrender value and the return of policy. In order to know the details related to the policy you need to enter information like policy term, your age and amount of sum assured. Once you enter all these information, the premium calculator will calculate the premiums of different endowment policies that you will be required to pay. You can compare the various endowment plans online and choose the most suitable plan according to your affordability, with the help of an endowment plan premium calculator.

How can I cancel my endowment policy?

Ans- In order to cancel the endowment policy, you will be required to visit the insurance provider along with the important documents like policy documents, Policy cancellation form, ID Proof, and a cancellation cheque for fund transfer. Although the process of policy cancellation may differ from insurer to insurer, it is important that you contact your insurer and know the procedure of policy cancellation

What documents should be kept handy while purchasing an endowment policy?

Ans- While purchasing an endowment policy, the insurance holder should keep the following documents handy:

  • Photograph
  • Residential/address proof
  • Age proof
  • Completely filled policy application form
  • Medical report (If required)

Why should you buy an endowment plan?

Ans- Endowment plans provides an opportunity to do savings in a disciplined way so that you can achieve the future financial goals of life. Moreover, the plan provides an added advantage of life insurance coverage to the family of the insured in case of your absence. Although, the returns in endowment plans are comparatively less as compared to the other investment plans, the policy provides risk free guaranteed sum assured. Apart from this, the plan also provides tax benefit under different section of Income Tax Act.

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