Endowment Plan

Endowment plan: An endowment plan allows you to build risk-free savings and protect the financial interests of your family in your absence

Endowment Policy

An Endowment Policy is a savings linked insurance policy with a specific maturity date. Should an unfortunate event by way of death or disability occur to you during the period, the Sum Assured will be paid to your beneficiaries. On your surviving the term, the maturity proceeds on the policy become payable.

Endowment plan is a life insurance policy which provides you with a combination of both i.e.: an insurance cover, as well as an savings plan. It helps you in saving regularly over a specific period of time, so that you are able to get a lump sum amount on policy maturity, if the policyholder survives the policy term.

The policyholder gets his/her sum assured on a fixed date in future as per the policy terms and conditions. However, in case of sudden death of the policyholder, the insurance company will pay the sum assured (plus the bonus, if any) to the nominee of the policy. Besides, it is also useful to secure yourself or your family post-retirement or to meet various financial needs such as funding for children's education and/or marriage or buying a house.

Features of Endowment plan

• Death along with Survival benefits: In case of demise of the insured, the beneficiary/nominee of the policy gets the sum assured along with bonuses. Also, the insured is allowed to get the sum assured if he/she outlives the policy.
• Higher returns: An endowment policy is helpful in building a corpus for future and providing financial protection to your family. The payout for survival benefit and death benefit of an endowment plan is higher than that of a pure life insurance policy.
• Premium payment frequency: The policyholder can make payment of the premium based on the policy chosen by him/her. Payment can be done on monthly, quarterly, half-yearly, and on yearly basis.
• Flexibility in Cover: Riders like critical illness, total permanent disability, and accidental death can be added to the base plan and enhance the life cover. In addition to this, there are a few plans that offer waiver in the premium payment on total permanent disability or critical illness.
• Tax Benefits: The policyholder is entitled to get tax exemption on both premium payments, maturity and final payouts under the Section 80C and Section 10(10D) of the Income Tax Act, 1961.
• Low Risk: Traditional Endowment policies are considered safer as compared to the other investment option such as the Mutual Fund or the ULIP’s because the amount here is not directly invested in equity funds or the stock market.

Benefits of Endowment Plan

• Provides Insurance Cover: An endowment policy provides insurance cover during the policy term.
• Lump sum payout: It provides a lump sum payout when the policy matures (i.e. at the end of the policy term)
• Serves with a dual purpose: An endowment policy serves you with a dual purpose as it not only works as an insurance policy but also offers you with long term investment benefit.
• Provides you with a Tax Benefit: You are entitled to get tax exemption on both premium payments, maturity and final payouts under the Section 80C and Section 10(10D) of the Income Tax Act, 1961.
• Offers Low-Risk Investments: When it comes to investing, endowment policies are considered as a relatively safer option than other types of investments.
• Offers Long-term savings: An endowment policy offers long term savings. You can choose a policy term ranging from 10, 15, 20, 30 to 40 years.
• Provides option to add riders: With Endowment policies, you get an option to enhance your policy by opting for additional riders like critical illnesses, waiver of premium, family income benefit, accidental death benefit, and accidental permanent total / partial disability benefit.
• Additional Bonuses: Insurance companies also declare bonuses. Here, the bonus is the extra amount of money added to the proceeds, which is distributed to a policyholder by an insurer.

Things You Need to Know Before Buying an Endowment Plan

• Begin planning early: When it comes to investing, it is always considered ‘the earlier the better’ as it offers a long horizon for your invest to grow. This, in turn, will help the insured to build a corpus and facilitate disciplined saving.
• Select a plan that offers riders: There are some insurance companies that offer riders as an inbuilt feature and one must never miss to get benefited out of it. Additional benefits would include benefits like education endowment, double endowment policy or marriage endowment policy.
• Review flexibility option: Insurers offering endowment plans provide flexible option i:e. in case an individual is salaried, she/he can choose a regular endowment policy whereas an individual with irregular income may opt for single payment option or limited premium payment option.
• Guaranteed and Non-Guaranteed returns: Apart from offering low-risk insurance and dual benefit of death cover and saving feature, many of these policies also offer a combination of guaranteed and non-guaranteed. The guaranteed returns such as guaranteed additions remain fixed and are payable on death or maturity (as applicable). The non-guaranteed returns include bonuses that are variable in nature and it depends on the investment performance.
• Bonuses: Bonuses will be declared by the insurance company depending on how the company has performed. When the insurer has made profits from its investments, he distributes a part to it to policyholders at the end of each financial year. Besides, profit of the insurance company depends on the valuation of its assets and liabilities.

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