What is an Endowment Policy?

Are you an impulsive buyer and cannot sustain your urge to buy stuff even when you are not in need of it and then worry about your savings and future financial needs? An endowment policy is designed just for you!

An Endowment Policy is typically a life insurance policy covering the insured for a specific period and pays out a lump sum amount of money upon maturity to the insured or to the nominee in case of death of the policy holder. Generally, the term of any Endowment Policy is ten, fifteen or twenty years. In short, an endowment Policy assists the policyholder to save a certain lump sum amount along with being insured for a period with the total sum being paid out at maturity if the policy holder survives the same. This maturity amount can be utilised to meet various crucial financial needs like the education of a child or purchase of a house. You can check the options when you compare on Coverfox.com.

Endowment Policies are of two types, basically:

Endowment with Profit: Endowment with profit, as the name suggests, pays the policyholder with the assured sum along with bonus accumulated over the term of the policy, if the policy holder outlives the policy term. In other case, if the the policy holder dies during the policy term, the nominee receives the sum assured along with the bonus. This type of endowment policy requires the policyholder to pay a higher premium amount compared to normal premium. This amount is invested by the insurer and a bonus from the company’s profit is added to the policyholder’s account. This bonus is paid out at once along with the assured sum.

Endowment without Profit: These are typically term insurance plans where the policy holder or the nominee receives only the sum assured at the end of the policy period. No bonus is paid out in such a case.

Benefits and Features of Endowment Policies

  1. Low Risk: Since the amount in endowment policy is not directly traded in the stock market as in mutual funds, an endowment policy offers a saving platform along with life insurance at low risk.
  2. Flexibility in Premium Payment: The frequency of premium payment can be decided by the policy holder. Premium can be paid out on a monthly, yearly, quarterly or half yearly basis.
  3. Choice of Cover: The cover for life can be modified and enhanced by the policyholder on the basic cover offered by the insurer. One can add on a critical illness cover or a premium waiver cover to the endowment policy with payment of an extra premium.
  4. Insurance plus Saving: Unlike the conventional life insurance policy where the nominee of the policyholder receives the sum assured only after the demise of the policyholder, endowment policies provide benefits to the nominee on death of the policyholder during the term of the policy along with survival benefits to the policyholder if he survives the policy period.
  5. Significant Returns: the return from an endowment policy is much higher than a simple life insurance policy. Since an endowment policy is a life cover with a saving means to build corpus for the future, it reaps a death and maturity benefit, both, for the policyholder along with bonuses paid out. In case of the death of the policyholder, the nominee receives the sum assured with bonuses, additionally, a final addition bonus is also paid out to the nominee if the policy premium is being paid off for 17 years. Similarly, if the policyholder outlives the policy period, the final additional bonus is paid out to the insured if the premium is paid off for 17 years.
  6. Tax savings: Premiums paid out towards an endowment policy is exempted from tax payment under Section 80C and the maturity payment is exempted from tax payment under Section 10D of Income Tax Act.

Best Endowment Plans in India

LIC New Endowment Plan: The insurer, LIC, is one of the most trusted life insurers in the country and offers an endowment policy plan with one of the least premium payment amounts. The premium amount is INR 773 per month and offers death and maturity benefits along with an option to include riders to the plan.

SBI Life Smart Bachat: In this plan the premium payments are done for a certain number of years depending on the policy period chosen. The premium amount is significantly low, as much as INR 450 per month. The premium can be paid out in 5, 10 or 15 years.

Endowment policy helps the policyholder make a disciplined savings to meet the future financial needs without disrupting the current financial state. It offers life cover with a means save, with periodic payment of premium little higher than the normal premium which is accumulated as the bonus at maturity. With additional riders, life cover and bonuses paid out at maturity, an endowment policy is one of the best insurance and savings plan for an individual.