Endowment Plan

Endowment Plan

Endowment Plans are a form of life insurance plans that serve a double objective. These plans act like saving schemes wherein you get a lump sum amount at the time of maturity of the policy or at the time of death of the policyholder. If you cannot resist spending money on purchasing different commodities, then this is the plan for you. Basically, an endowment plan is not just an insurance plan, it is also an investment plan. Moreover, in case of need, you can get your policy encased before the date of maturity and receive an amount fixed by the insurer.

What is an Endowment Policy?

Apart from providing financial cover in case of the policyholder’s death, the Endowment Policy helps you to save money over a specified period of time. If you take an endowment policy, you will receive a lump sum amount at the time of your policy maturity, if you survive the policy term. Serving a dual purpose, your endowment plan provides financial protection to your nominee in the event of any unfortunate incident and it also creates a savings corpus for you. This insurance plan is a safe and worry-free savings plan for you. You can use the amount that you get, once the policy matures, to fulfill your other financial needs like higher education of your children, your retirement funding, purchasing a property or the marriage of your children. In case of the demise of the insured within the policy term, the life insurance endowment plan will pay the full sum assured to the beneficiary of the policy. The other benefit of the policy is that if the insured survives the policy term, he/she will get the entire sum assured to fulfill his/her long-term or short-term financial goals. Therefore, an Endowment Plan achieves two objectives; the need for life cover and financial savings. Endowment Plans are easily available for the benefit of an individual.

Key Features

Some salient features of Endowment Plans are:

Death and Survival Benefits
The beneficiary or the nominee receives the entire sum assured along with the bonus if death occurs within the term of the policy. If the policyholder outlives the policy term, he/she will receive the sum assured.

Maturity Benefits
If the policyholder survives the policy term, or if the policy matures, the insured receives the sum assured along with the bonus for the policy term. The amount you are liable to receive is tax-free.

Ensured Higher Returns
In the event of the unfortunate demise of the insured, the endowment policy provides financial assistance to the nominees. This insurance plan also helps in creating a saving corpus to secure your future.

Frequent Payment of Premium
The endowment policy provides you the feature of making single, regular or limited premium payment the depending on the policy that you select. You can select to pay in yearly, half-yearly, quarterly or monthly frequencies.

You can add riders to your endowment policy. These riders cover critical illness, total disability or accidental death. Adding riders to the existing policy, you increase the financial cover of your endowment plan. Some endowment plans offer waiver on the premium paid in case of permanent disability or critical illness.

Low Risk Plan
An endowment policy is safer than other investment plans such as ULIPs, Mutual Funds etc. as you do not directly invest your money in equity funds or stock market.

Tax Rebate Benefit
By taking an endowment policy, you can avail tax benefit on the premium paid as well as on maturity of the policy or final death payouts, under Section 80C and Section10 (10D), respectively.

Benefits of Endowment Plans

Some of the important benefits of endowment plans are:

  •  An endowment policy provides a significant lump sum amount at the time of the maturity of the policy.
  • The endowment policy also provides financial protection during the term of the policy.
  • You can avail tax benefits on your endowment policy
  •  Your endowment plan works as a dual policy, as an insurance plan and a long-term investment plan.
  •  It is a safe and a low-risk investment plan and offers good returns at the time of maturity.
  • An endowment policy ensures assured sum at the end of the policy term.

Add-ons or Rider Benefits

You can purchase add-on riders to increase the benefits of your endowment plan such as:

Accidental Death Cover
If you purchase this rider, the nominee will get an additional benefit in the event of accidental death of the insured along with the death benefit.

Disability Cover
This rider gets you financial protection in case of permanent or partial disability. This is one of the most beneficial riders of the endowment policy.

Critical Illness Cover
If the policyholder is diagnosed with any critical illness such as cancer, kidney failure, heart disease, etc., this rider proves to be of utmost benefit as a lump sum amount is provided to you on the diagnosis of such critical illness.

Premium Waiver
Under this add-on benefit, you are not required to pay any premium for your endowment policy if you are diagnosed with some critical illness or suffer permanent disability.

Hospital Cash Benefit
The hospital cash benefit rider makes you liable to receive daily allowance if you are hospitalized. Post-hospitalization costs are also included in this rider.

Who should purchase Endowment Policy?

If you have a steady source of income and are looking for a lump sum amount after a fixed period of time, an endowment plan is ideal for you. With an Endowment Policy, you can build a savings corpus to benefit your family or/and the dependents at the time of financial needs. Small business owners, salaried persons, and professionals such as lawyers or doctors must invest in endowment plans to fulfill their long-term financial goals. Furthermore, endowment life insurance plans are safe and have low risk thus making them a good option for people who are averse to taking risks.

Why should you purchase an Endowment Policy?

Every healthy individual who is looking for a risk-free life insurance cover with guaranteed, tax-free returns on investments to fulfill their future financial goals may choose to purchase an endowment policy. If you have a regular source of earnings so that you can pay the premium regularly, you can choose to buy these endowment plans. These policies require a long-term investment as the longer is the term of the endowment policy; the better will be the benefits.

Factors to Consider Before Purchasing Endowment Plans

Before buying any endowment plan, you should consider the following factors:

Early planning
It is good to start your investments early to ensure long-term benefits and build a large corpus of savings over a specified period. You would get better returns on your investment along with a defined path for savings

Good knowledge of Endowment Plans
It is important to have a good knowledge of the features of the policy before investing. For an endowment plan, you are required to make frequent payments on the premium. A portion of your premium is used to purchase a life insurance policy while the other portion is invested on a ‘non-profit’ or ‘profit’ basis type of policy.It is important to have a good knowledge of the features of the policy before investing. For an endowment plan, you are required to make frequent payments on the premium. A portion of your premium is used to purchase a life insurance policy while the other portion is invested on a ‘non-profit’ or ‘profit’ basis type of policy.

Flexibility opportunity
The insurer offers various flexible options to you. If you are a salaried person, you may opt for a regular payment endowment plan. In case you have an irregular income source, you can opt for single payment plans.

Select riders with your endowment plan
Insurance companies offer riders with the endowment policy such as education endowment, marriage endowment, double endowment policy, critical illness cover, etc. While purchasing an endowment policy, choose beneficial riders to avail additional benefits on your plan.

Based on its performance, the insurance company provides several bonuses to the insured. If the insurance company is making good profits from the investments of the insured, it allocates some part of the profit as bonuses to the insured at the end of the policy term.

Guaranteed or Non-Guaranteed Returns
Apart from double benefits of death cover and savings, and low-risk insurance plans, several endowment plans provide a combination of guaranteed and non-guaranteed returns. Check for those.

Check Premium Rates
Before buying endowment plans, check the premiums of different endowment policies as the premium rates are higher compared to Term Insurance Plans. Thus, an error in investment may prove to be expensive in the long term.

Thus, it is advisable to have good knowledge of the endowment policy before purchasing. Select the most suited plan as per your requirements.

List of Documents Needed to Buy an Endowment Policy

For an Endowment Policy, you need to furnish the below-mentioned documents.

  • Photograph
  • Age Proof
  • Address proof
  • Filled application form

List of Documents to Be Submitted for a Claim in Endowment Plans

The following are the documents that you need to submit to the insurance company for filing claims.

  • Policy document
  • Duly filled claim form
  • Medical certificate
  • Prescriptions and diagnostic reports
  • Death certificate
  • Post mortem reports and FIR in the case of unnatural demise
  • NEFT details
  • KYC of the policyholder and nominee

To summarize, the main benefits of an endowment plan is to provide financial cover to the family and dependents, long-term goal-based savings, tax exemption under Section 80C and 10(10D) of the Income Tax Act as well as an option to take a loan against the endowment policy if there is a financial contingency.