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Endowment policy

Endowment policy

An endowment insurance plan is a savings oriented life insurance plan which helps in building up a secured financial corpus. The plan promises guaranteed benefits and pays either a death benefit or a maturity benefit.

Features of an endowment policy

There are some qualifying features of an endowment policy which are as follows:

  • The policy is usually offered for long tenures going up as high as 30 years. In some endowment plans, lifelong coverage might also be available.
  • The policies are issued either as participating policies or as non-participating policies. In participating plans, bonuses are declared while in non-participating plans bonuses are not declared.
  • Guaranteed additions and loyalty additions might be added under some endowment plans.
  • These plans pay the sum assured on death or maturity. Along with the sum assured, any type of additions which accrued during the term and any bonus added to the plan are also paid.
  • Optional riders are also available under endowment plans.
  • Loans are available under endowment plans wherein the policyholder can avail up to 90% of the surrender value as loan.

Why endowment policy is a good choice?

Endowment policies provide the following advantages which make them a good choice:

  • The benefits provided under the plans are guaranteed. Thus, there is no risk in the returns promised by endowment plans. For risk-averse investors, endowment plans make a good choice.
  • In participating endowment plans, bonus declarations enhance the benefits payable. This gives a good return to the policyholder. Even in case of non-participating plans, guaranteed or loyalty additions increase the benefits payable on death or maturity.
  • The plan provides insurance coverage as well as creates a corpus for savings need of the policyholder.
  • The premiums paid are allowed as a tax deduction under Section 80C while the benefits received are tax exempted under Section 10 (10D). Thus, endowment plans provide dual tax benefits not only on the investments but also on the returns generated from the plan.
  • Loan facility allowed under the plan provides policyholders funds when it is needed.

Types of endowment policies

There is a range of endowment policies among which individuals can choose the one they desire. Below, we have listed 4 types of policies that come under the endowment plan. 

  1. Full/With Profit Endowment Plan
    Under this type of policy, the basic sum assured amount is given to the insured person. The sum is however equal to the death benefit. Right from the beginning of the policy stage/when the policy is purchased, the cover/amount is guaranteed. Under this policy, the insurer offers bonuses upon maturity/event of death. As a result, the final payout given to the insured individual becomes higher due to the additional bonuses. 
  2. Low-cost Endowment Plan
    If you are a person that is looking toward saving funds for the future, a low-cost endowment policy is for you. These plans are ideally designed for individuals to save/gather funds for future purposes that need to be paid after a certain time period. Ideally, people opt for this plan because it helps in repaying mortgages, loans, etc. However, if the insured individual passes away during the policy tenure, the target amount is paid in the form of a minimum sum assured to the nominee. 
  3. Unit-Linked Endowment Plan
    Unit-Linked Endowment Plan is a fixed-term saving plan wherein someone can store their finances besides obtaining the benefits of life coverage. To be more precise, this type of endowment plan is best for people who hold a high-risk appetite. People who wish to acquire high returns on investment (ROI) can also opt for this plan. Herein, the premiums are bifurcated into several units under a certain investment scheme as selected by the insured person. Note that the ROI entirely depends on the performance of the funds in the market.
  4. Non-profit Endowment Plan
    These plans provide a guaranteed return to the insured individual. Typically, the sum assured amount is given to the insured person. Upon maturity, it is paid as a maturity benefit, and at unusual events, the sum assured is paid to the nominee of the policy in the form of a death benefit.

Best endowment plans in India

Here are some of the best endowment plans available in the Indian insurance market currently:

 

Plan nameSum assured allowedSalient features
Bajaj Allianz Life Super Life AssureRs.50, 000 onwards
  • Provides two coverage variants
  • There are monthly incomes in one variant after the death of the insured
  • Bonuses help increase the benefit payable
  • Optional riders are available for enhancing the coverage
LIC’s New Jeevan AnandRs.1 lakh and above
  • At least 125% of the sum assured is paid as a death benefit
  • Bonuses are declared under the plan
  • Accidental benefit rider is available
  • Attractive premium discounts are also available
ICICI Pru Savings SurakshaRs.1.2 lakhs and above
  • Guaranteed additions and bonus are both added to the plan benefits
  • The maturity benefit is guaranteed
  • Policy loans are available
HDFC Life Sampoorn Samridhi Plus PlanRs.65, 463 and above
  • Coverage is allowed up to 100 years of age
  • Limited premiums are required
  • Guaranteed additions and bonus declarations help in boosting the plan benefits
  • Accidental rider benefit is inbuilt in the plan
HDFC Life SanchayRs.100, 703 and above
  • Limited premium endowment plan
  • Guaranteed additions are promised during the term of the plan
  • Get 180% to 325% of the sum assured on maturity

Who should buy an endowment policy?

Typically, endowment plans are a means of immense help for the dependents of the insured person at times of financial contingencies. 

  • Under expert advice, individuals who maintain/receive a regular stream or earnings should consider buying an endowment policy. 
  • Individuals who require lump sum amounts after a specific period can also think of purchasing an endowment plan. 
  • Salary individuals, small entrepreneurs, and professionals like doctors and lawyers should consider buying the endowment plan to meet all their long-term monetary goals. 
  • Endowment plans are best for individuals who don’t mind gaining low returns 
  • Risk-averse investors must try investing in endowment plans 
  • These plans are highly preferable and ideal for the common class people in place of people who belong to the super-rich class 
  • Any individual that does not wish to invest in a comprehensive life insurance policy can purchase an endowment policy. This is because it works as a saving instrument. 
  • People who wish to use funds as retirement security, or in the form of savings can purchase the plan to cater to all their future needs. 
  • To build a corpus to meet the investment objective for a long term. 

Under what circumstances should one buy an endowment policy?

Every individual longs for a risk-free and guaranteed return investment. As we’ve discussed earlier, endowment plans should be purchased by individuals who, 

  • Wish to protect their family and dependents financially in their absence 
  • Aim to have goal-based savings 
  • Wish to build a corpus to cater to all their investments and for a long term 

However, every element has a set of exceptions. Similarly, there are certain limitations to buying endowment plans that one should consider. 

As it is known, endowment plans are regular premium plans. Hence, it should only be purchased when the insured individual is sure and confident about his/her steady flow of income. The aim here is to pay the premiums regularly without fail. 

Because endowment policies are long-term, individuals can gain huge benefits. Bear in mind that, the longer the plan duration, the better the total benefit. Hence, individuals that have an irregular income should think twice before investing in endowment plans. Instead, they may take a single pay loan/flexi pay loan. 

Endowment plans revolve around regularity and long-term. In a nutshell, it works better if these two factors are given proper attention. 

Why should an individual buy an endowment policy?

Endowment plans are the perfect approach to save money/funds to fulfil all future financial requirements. However, in case the main wage-earner of the family meets a sudden demise, the additional benefit of the Life risk cover turns out to be of great help to the family. Although the returns here might be lower, they are usually risk-free. The best part is, individuals can also avail tax benefits under certain conditions. 

There is a pool of reasons that state why endowment plans are highly preferred by risk-averse investors. Apart from covering the family’s monetary needs at unusual events, endowment plans offer the maturity amount to the insured individual in case he/she outlives the policy tenure. 

How does an endowment policy work?

At events when the insured individual meets a sudden demise right before the plan maturity, the nominee receives the fixed amount term in the form of sum assured. If the individual lives longer, he/she receives bonuses. In case the individual survives the policy term, he/she receives the maturity amount (Sum assured+Bonuses). 

Endowment Vs Money Back Policies

Both endowment and money-back policies provide combined benefits of life insurance and savings. Alongside, both the policies are eligible for tax deductions as well. However, there are negligible differences that make both the policies dissimilar to each other in a few fields. 

Endowment Policies 

Money-back Policies 

Endowment policies pay investment benefits by the end of the policy tenure 

Money-back policies overlap the investment benefit during the policy tenure at regular intervals. It breaks in the form of yearly bonuses. Upon maturity, it pays the total sum of bonuses 

Endowment policies offer a higher rate of return 

Money-back policies offer a lower rate of return 

Endowment Vs Term Insurance

The chief differences between Endowment plans and term insurance plans are: 

Endowment Plan

Term Insurance Plan 

Endowment plans provide a fused benefit of savings and insurance coverage 

A term Insurance policy is a complete life cover insurance plan. It deals in offering monetary/financial protection to the family of the insured person in the event of uncertainty/mishap. 

With regards to term plans, endowment plans do not provide a high sum assured amount. The reason is simple. Endowment plans are savings cum insurance plans that promise maturity benefits

A term insurance policy provides a high sum assured amount. This is because it deals in offering risk cover only. 

Typically, the premium rate of endowment plans is higher. This is because it puts forward a maturity benefit along with an extra loyalty bonus (if any) 

Herein, the term insurance policy charges a lower premium rate. This is because it solely provides a death benefit to the beneficiary of the policy just in case any unfortunate event arises (death of the insured person ) 

An endowment plan aims to make a lump sum payment to the beneficiary of the policy in the form of a death benefit. Alongside, it also makes a lump sum payment as a maturity benefit upon completion of the policy tenure. 

Here, the beneficiary obtains the sum assured amount in the form of the death benefit at events of sudden demise or death of the insured individual during the policy tenure 

List of documents required for purchasing an endowment plan

Listed below are the details of documents that an insured person requires for purchasing/applying for an endowment plan 

  • Document of age proof 
  • Address proof or residential proof
  • Photographs
  • Complete application form/proposal filled with all the mandatory details 

Taxability of endowment plans

Moving forward, what else can be better than a policy that plays the role of savings and tax Exemption tool simultaneously? Typically, endowment plans always accompany tax benefits with it. This is because the chief plan benefit and the payable premiums are eligible for tax exemption. Under Section 80C and 10(10D) of the Income Tax Act, 1961, the insured can obtain a tax exemption on maturity amount and premium payment to an extent.