What is An Endowment Plan?

Life is unpredictable. Things happen suddenly, unexpectedly. But the one thing that stays constant is your love for your family. You are always on the lookout to protect them against all uncertainties. You double-check the locks at night before sleeping, fasten their seatbelts in the car, and make sure they apply sunscreen while out in the sun. And of course, you work tirelessly to give them a good, comfortable lifestyle.

However, even after doing it all, you cannot be sure that, in the long run, it will be enough. For all the goals and dreams you and your family have, regular savings may not suffice. And you may not be around throughout to protect your loved ones. This is where an Endowment Plan, also known as a Guaranteed Plan, pitches itself.

An Endowment Plan is one of the best ways to shield your family from financial burden - should they have to weather unforeseen rainy days. It is a low-risk investment product that gives you guaranteed returns, as well as a comprehensive life cover.

Let’s dig deeper, and see what all it has to offer!

 

Introduction

In the simplest terms, they are a blend of insurance and investment. In exchange for the premiums you pay, Endowment Plans help you accumulate a good savings fund, while also providing a small life cover to take care of any eventualities.

An Endowment Plan is a great option if you have important financial goals like buying a house, higher education, etc. lined up in the future or if you are a salaried individual and want to ensure financial stability. It may have comparatively lower returns but is safe and guaranteed. It is your buoy in stormy seas!

Let’s dig into the details!

Benefits Offered By Endowment Plans

Maturity Benefits

A feature that makes Endowment Plans stand out is that it gives you a guaranteed lump sum after a specific period. This is known as the Maturity Benefit, or the sum assured. If you survive the policy duration, you receive a famount.

• Types of Maturity Benefits
  The maturity benefits can be fixed in the following ways:

• You directly choose the maturity benefit in the policy
  When purchasing the policy, you can figure out an amount that will comfortably cover your financial goals. That can be your sum assured. Based on this maturity amount, the insurer will calculate the premium amount you should pay.

• The total premiums paid
  When purchasing a policy, you also get the option to choose the premiums you want to invest, based on your budget and convenience. In this case, the maturity amount will be either -

  • The total premiums payable under the policy - Excluding the taxes, rider premiums, underwriting extra premiums, and loadings for modal premiums, or
  • A percentage of the total premiums payable - The minimum and maximum percentage depend on the age of entry, i.e., the age at which you buy the policy. It can range from 90% to 180%, 100% to 300%, etc - it will be different for different products.

Let’s understand the various types - with the help of a comparative example.

Suppose, Mahek buys an Endowment Plan in 2022, with a policy term of 20 years. Let’s see how the maturity benefit differs with the product she chooses.

Situation #1

Maturity benefit is equal to the chosen sum assured

Suppose Mahek chose a fixed amount of Rs. 40 lakhs as sum assured - while purchasing the policy.

Hence, as the maturity benefit, she will be eligible to receive Rs. 40 lakhs.

Situation #2

Maturity benefit is equal to the total premiums payable

This will exclude taxes, rider premiums, underwriting extra premiums, and loadings for modal premiums.

Suppose Mahek can pay an annual premium of Rs. 1.2 lakhs for the next 15 years - with the above-mentioned exclusions.

Hence, the maturity amount = Premium payable per year x Premium Payment Term

= 1,20,000 x 15

= Rs. 18,00,000

So, as the maturity benefit, Mahek will be eligible to receive Rs. 18 lakhs.

Situation #3

Maturity benefit is equal to a percentage of the total premiums payable

This will exclude taxes, rider premiums, underwriting extra premiums, and loadings for modal premiums.

Suppose Mahek is 32-year-old when she buys the policy. And the percentage specified for this age of entry is 110% of the total premiums paid.

Hence, the maturity amount = 110% of total premiums paid

= 110% x [Premiums paid x Premium Payment Term]

= 110% x [1,20,000 x 15]

= 110% x 18,00,000

= Rs. 19,80,000

So, as the maturity benefit, Mahek will be eligible to receive Rs. 19.8 lakhs.

Now coming to the other important benefit

Death Benefit

In case you, the policyholder, unfortunately, pass away during the policy term, your nominee is eligible to receive the death benefit, which can either be -

• The sum assured chosen at the time of purchasing the Endowment Plan, or
• A multiple of the annual premium chosen at the time of purchasing the plan.

This sum of money will make sure they can continue to lead a comfortable life and accomplish their goals, even in your absence. For instance, it can be used to replace your income so your family can maintain their standard of living, pay off all debts, provide for your children or dependents, cover their education and wedding expenses, etc.

Once the death benefit has been paid out, the policy will terminate.

Let’s take Mahek’s example again to understand the two types better.

Suppose she passes away in the 9th policy year. Here’s how the Death Benefit will differ with different products -

Situation #1

Death benefit as the sum assured chosen at the time of policy purchase

In this case, Mahek’s nominee shall receive Rs. 40 lakhs (the sum assured she had chosen).

Situation #2

Death benefit as a multiple of the annual premium chosen at the time of policy purchase

In this case, Mahek’s nominee shall receive Rs. 40 lakhs (the sum assured she had chosen).

Sum Assured = Annual Premium x Sum Assured Multiple

= 1,20,000 x 10

= Rs. 12,00,000

Therefore, her nominee shall receive Rs. 12 lakhs as the death benefit.

• Death Benefit Payout Options
  The nominee may receive it as -

• A Lump Sum
  The death benefit will be paid out to your nominee as a lump sum. However, some products may give an option for your nominee to get this lump sum in instalments.

• Payments In Instalments
  In this case, your nominee will receive the death benefit in staggered instalments, as per their comfort. The percentage, duration, and frequency will depend on the product. For example, 25% of the sum assured can be paid annually over a 4-year period.

  Please note that some products may give your nominee an option to receive these staggered instalments as a lump sum.

  Let’s take Mahek’s example again. We have assumed that she passes away in the 9th policy year i.e. 2030. As stated earlier, her nominee is eligible to receive Rs. 40 lakhs as the death benefit, and they can choose to receive it as a lump sum or in instalments.

  Let’s see how the two situations work out.

Situation #1

Death benefit as a lump sum

In this case, Mahek’s nominee will receive Rs. 40 lakhs as a lump sum - in 2030.

Situation #2

Death benefit in instalments

Suppose her nominee chooses to receive 25% of the death benefit annually over a span of 4 years.

Therefore,

Annual death benefit payout= 25% of 40,00,000

= Rs. 10,00,000

Hence, her nominee will receive Rs. 10 lakhs on an annual basis from 2030 to 2033.

Let’s summarise the two important benefits of Endowment Plans - Maturity and Death Benefits - by taking a different example.

Udit purchases an Endowment Plan in 2022, with a 15-year policy term. He chooses a sum assured of Rs. 30 Lakhs. He needs to pay an annual premium of Rs. 2,00,000 over a premium payment term of 10 years. He appoints his son as his nominee.

It’s stated in the policy that Udit or his son will receive the sum assured as the maturity or death benefit, respectively - whichever happens earlier.

This is how the two benefits will work -

• Maturity Benefit
  If Udit survives the policy term, he will receive the maturity benefit after 15 years. The maturity benefit is the sum assured. Hence, Udit is eligible to receive Rs. 30 lakhs in 2037.

• Death Benefit
  If Udit passes away within the policy term, say in the 10th policy year, his son is eligible to receive the death benefit immediately. Hence, his son will receive a death benefit of Rs. 30 lakhs (sum assured) in 2031. Once it’s paid out, the Endowment Plan will terminate.

So this is how the two important benefits work. Let’s see what else a Endowment Plan has to offer -
 

Features of A Endowment Plan

Depending on the product you choose, you will receive various other benefits, like -

Guaranteed Additions

The insurer gives you guaranteed additions if you pay your policy premiums on time. They are paid as a lump sum at maturity or death - whichever happens first. And calculated at a rate of per thousand of the cover amount.

Guaranteed additions get added to your policy at the end of each year - for a few years or till maturity (depending on the product).

Suppose, Sara purchases an Endowment Plan with a sum assured of Rs. 15 lakhs. According to her policy, guaranteed additions of Rs. 30 per Rs. 1000 of the sum assured will be added to her policy at the end of each year - for the first 4 years.

Therefore, she will receive guaranteed additions of = Rs. [30 x (15,00,000/1000)]

= Rs. (30 x 1500)

= Rs. 45,000 per year.

Now, they get accumulated for 4 years.

Hence, the total guaranteed additions Sara will receive with the maturity benefit, or her nominee will receive with the death benefit = Rs. (45,000 x 4)

= Rs. 1,80,000.

Loyalty Additions

As the name suggests, they are additions that accrue on your policy, if you are loyal to it and pay the premiums as and when they are due.

Loyalty additions are calculated till maturity - as a percentage of the total premiums paid at the end of each policy year after the premium payment term is over. They are paid as a lump sum when the policy matures.

Taking Sara’s example again. She buys an Endowment Plan with a sum assured of Rs. 15 Lakhs, in 2022, for a term of 20 years. She needs to pay an annual premium of Rs. 1,00,000 for 15 years, i.e., till 2036. She will receive the maturity benefit in 2042.

Sara pays all her due premiums on time till 2036. The loyalty additions start getting added up from 2036, and let’s say, they are 5% of the total premiums paid.

Therefore, total premiums paid = 1,00,000 x 15

= Rs. 15,00,000

Annual loyalty additions starting from 2036 = 5% of 15,00,000

= 75,000

These will accrue annually from 2036 to 2042.

Hence, when the policy matures in 2042, Sara will receive Rs. (75,000 x 6) = Rs. 4.5 lakhs as loyalty additions.

Joint Life Option

A joint-life payout means you (the primary life insured) and your spouse (the secondary life insured) are covered under the same policy. This is a good option to provide financial security to your spouse.

You can choose this option at the time of policy purchase, and both of you can jointly own the policy. In this case, your spouse will receive 20% of the sum assured applicable to you - depending on the product.

So this is all about Endowment Plans and the benefits they bring along. If you are looking for a low-risk plan with the two-in-one feature of insurance and investment, it is for you. Or if you want to save up small amounts of money over time to cover for future milestones, like - children’s education or wedding - it is again a great option. Assess your needs, do your research, and invest in a Endowment Plan, if it suits you.
 

How Endowment Plans Work?

Insurance is one of the most important investments you will make for your family. It is pretty much a commitment. Considering it has a strong and long-term impact on your family’s financial stability, it becomes crucial to know how the policy works and how you will be benefitted.

Endowment Plans, also known as Guaranteed Plans, are a great option if you want to save in a low-cost investment plan, as well as protect your family with a small life cover. They are a low-risk product that gives you a good blend of investment and insurance. But before investing your time and money into one, make sure you know your policy, inside out.

In this article, we will take you through all the nuances of an Endowment Plan - so you can make a really thorough choice.

• Assess Your Needs

1. The first thing you need to do before purchasing an insurance policy is to review your financial goals. What are you buying the policy for? Say, you want to save up for your children’s wedding, and also protect your spouse financially - if, unfortunately, you are not around anymore.
2. Factor in all of your finances, your assets, financial savings, loans and liabilities, and existing insurance plans you may have.
3. Calculate the amount of money you and your family will need for both short-term goals (like travelling to a new city) and long-term goals (like starting a new business).
4. Before deciding the cover amount, take into consideration an inflation rate of 6-8% over this amount - for 12-15 years at least. This ensures that you and your family have adequate coverage, even when the cost of living increases.
5. Also, calculate and know the Internal Rate of Return of your investment. This will help you understand if the returns will be enough to cover your goals. For this, you can either take the help of a financial advisor or an online calculator.
6. Your Endowment Plan should be perfectly tailored to your needs and requirements. Only then will it be able to protect you truly.

• Set Your Budget For Investment

1. To buy an Endowment Plan, just like any other insurance policy, you need to pay certain premiums. So before buying one, estimate how much you can invest over the minimum payment period. Make sure you are comfortable with paying the premium, and it doesn’t become an added burden.
2. For instance, if you want to buy an Endowment Plan with a premium payment term of 25 years - make sure you can smoothly pay over those 25 years. Determine the amount accordingly.

• Know That It’s A Financial Commitment
  As we mentioned earlier, insurance is a long-term commitment, and by investing in one, you bind yourself to it. To keep an Endowment Plan running throughout its policy term, you need to actively pay the premiums within the due date. Or else, the policy will lapse and all its benefits will be terminated.

  • Important Points To Be Noted -
    • The stipulated premiums need to be paid on time for a specified period.
    • You or your nominee shall receive the sum assured only on policy maturity or in case you pass away.
    • If you want to withdraw money from your accumulated fund before maturity, you may suffer significant losses.

• Customizations Offered By An Endowment Plan

• Different Limited Pay Options
  Under this option, you can pay off the premiums early in life and enjoy the cover for the rest of the policy period. The payment term can be as per your comfort and convenience, say -10 years, 20 years, 30 years, etc.

  For example, 30-year-old Reshma buys an Endowment Plan for a period of 30 years. By the time she reaches 45, i.e. while she has a stable income, she wishes to pay off all her premiums. Therefore, she can opt for the Limited Pay Option and pay all the premiums for her policy over the next 15 years - while being covered for the entire policy period.

• Premium Payment Frequency
  With Endowment Plans, you can customise when you want to pay the premiums, as well as how often you’d like to pay them. Depending on your convenience, you can pay the premiums -
  • Annually
  • Semi-annually
  • Quarterly
  • Monthly

For instance, Ratul, a 30-year-old is a salaried employee, who has purchased an Endowment Plan of Rs. 25 lakhs for a 20-year policy period. Due to his debt obligations, Ratul finds the monthly plan a more comfortable way to pay the premiums, while taking care of his other financial liabilities.

Please note: Regardless of the payment frequency option you choose, always set up auto-debit or standing instructions on your bank account. It ensures your premiums are paid on time and prevents policy lapse.

• Riders
  Riders are optional benefits that are available at an extra yet reasonable amount. They kick in, under certain circumstances, and provide additional financial relief when you or your family face a certain financial risk. No further documentation or health tests are required to get riders - besides the ones already done for your base Endowment Plan.
  A list of riders available with an Endowment Plan -

1. Accidental Disability Rider
2. Accidental Death Benefit Rider
3. Hospital Care Rider
4. Surgical Care Rider
5. Critical Illness Rider
6. Waiver of Premium on Critical Illness Rider
7. Waiver of Premium on Accidental Disability Rider

Please note: This is a non-exhaustive list. The riders may differ across insurers and their products.

• Joint Life Protection Option
  If you select this option, you and your spouse can jointly own the Endowment Plan. This means both of you will be covered under the same plan. You will be the primary life insured, and your spouse will be the secondary life insured. Generally, the sum assured applicable to your spouse will be 20% of the sum assured applicable to you.

  Please note: You can choose the Joint Life Protection Option only at the time of purchasing the Endowment Plan.

  For instance, Malini buys an Endowment Plan with a sum assured of Rs. 50 lakhs. While buying the policy, she opts for Joint Life Protection and jointly owns the policy with her spouse, Sayan. Therefore, a sum assured of Rs. 10 lakhs (20% of Rs. 50 lakhs) will be applicable for Sayan.

• Premium Payment Process
  To keep the policy running, you need to pay the premiums on time. As discussed above, you can customize when and how frequently you want to pay them. The premiums shall be decided by your insurer based on -
  • Policy type
  • Cover amount
  • Riders opted (if any)
  • The premium paying option (limited pay or regular pay), etc.

Some products may also give you the option of deciding the premium amount. Based on that amount, the sum assured will be calculated.

• Policy Renewal
  To keep the policy running, you need to pay the premiums on time. As discussed above, you can customize when and how frequently you want to pay them. The premiums shall be decided by your insurer based on -

• 2 Major Benefits Offered By Endowment Plans

  • Maturity Benefit
  • Endowment Plans give you a guaranteed lump sum after a specific period. This is known as the Maturity Benefit, or the sum assured. On surviving the policy term, you receive a guaranteed amount.
  • Here, the sum assured can be either -
    • A Specified Amount
      You can choose a fixed sum assured - based on your needs and requirements.
       
    • The total premiums paid
      Based on how much you can comfortably spend, you can also decide the premium amount. In this case, the sum assured will be either -
      • The total premiums payable under the policy - excluding the taxes, rider premiums, underwriting extra premiums, and loadings for modal premiums, or
      • A percentage of the total premiums payable. The minimum and maximum percentage depend on the age of entry, i.e., the age at which you buy the policy. It can range from 90% to 180%, 100% to 300%, etc.

Let’s look at Aisha’s example.

Aisha buys an Endowment Plan in 2022, with a policy term of 20 years. She chooses a fixed sum assured of Rs. 40 lakhs. The premium for her policy comes around Rs. 2,00,000 per year - to be paid for the next 15 years.

Therefore, if Aisha survives the policy term, she is eligible to receive Rs. 40 lakhs as the Maturity benefit - in 2041.

• Death Benefit
  It is the amount of money paid to your nominee - in case you pass away while the Endowment Plan is in effect. The Death Benefit serves as an income replacement and helps your loved ones lead a comfortable lifestyle - even in your absence,
• Depending on the product you choose, the Death Benefit can be either -
  • The chosen sum assured, or
  • A multiple of the chosen annual premium.

It can be paid out as a lump sum or as periodic instalments. The percentage, duration, and frequency may vary - depending on the product you choose.

Let’s recall Aisha’s case.

For the sake of an example, we’re assuming that Aisha passes away in the 10th policy year, i.e., in 2031. Then her nominee will be eligible to receive the Death Benefit of Rs. 40 lakhs.

They can choose to receive it as a lump sum or in instalments. This is how the two situations will work out, respectively -

Death benefit as a lump sum
In this case, Aisha’s nominee will receive Rs. 40 lakhs as a lump sum - in 2031.

Death benefit in instalments
Suppose her nominee chooses to receive 20% of the death benefit annually over a span of 5 years.

Therefore,

Annual death benefit payout = 20% of 40,00,000

= Rs. 8,00,000

Hence, her nominee will receive Rs. 8 lakhs on an annual basis from 2031 to 2035.

Let’s sum up the two important benefits of an Endowment Plan - by taking a different example.

Shikha buys an Endowment Plan in 2022, with a 25-year policy term. She chooses a sum assured of Rs. 50 lakhs. She needs to pay an annual premium of Rs. 3,00,000 over a premium payment term of 20 years. She appoints her son as her nominee.

As mentioned in the policy, Shikha or her son will receive the sum assured as the maturity or death benefit, respectively - whichever happens first.

This is how the two benefits will work out -

Maturity Benefit
If Shikha survives the policy term, she will receive the maturity benefit after 25 years. Let’s assume that the maturity benefit is the sum assured. Therefore, Shikha is eligible to receive Rs. 50 lakhs.

Death Benefit
If Shikha passes away within the policy term, say in the 9th policy year, her son (the nominee) is eligible to receive the death benefit immediately. Hence, her son will receive a death benefit of Rs. 50 lakhs (sum assured). Once it’s paid out, the Endowment Plan will terminate.

Now that we have discussed the benefits, let’s have a look at -

• Policy surrender process
  If you are facing financial distress, or if you feel the Endowment Plan does not fulfil your needs anymore, you can choose to discontinue your policy. This discontinuance is known as a policy surrender.

  After paying the premiums and continuing the policy for 2 years, your policy acquires something called a Surrender Value (a stipulated amount). And if you choose to surrender the policy after those 2 years, you receive that stipulated amount.
   

 

Types of Endowment Plans

Whenever you plan to buy something, you put on your google goggles, conduct quick research, and make sure it fits your expectations and budget. For instance, if you want to buy a smartphone, you look for one that is within your financial reach and meets your specifications or if you are looking for an air conditioner, you find one that is suitable for your home.

So, it goes without saying that every individual has their own set of needs, and hence, finding a product that perfectly matches your requirements is super important to ensure that your hard-earned money doesn't go down the drain.

With that being said, Endowment Plans (or Guaranteed Plans) also come in many types that cater to every individual's preferences. Let's take a look!

These are some of the most common types of Endowment Plans available today:

Regular Payment Endowment Plans

If you choose this option, you need to pay the premiums until the end of the policy period.

These policies are usually chosen by people who have predictable income over the long term and want to spread the cost across several years thus reducing premiums.

The premium for such policies is usually determined by taking many factors into account, like -

• Policy duration chosen at the time of policy purchase
• Age
• Gender etc.

Example
Kabir wishes to buy an Endowment Plan. He chooses the Regular Payment Endowment Plan with a sum assured of Rs. 50 Lakhs for 15 years. Under his policy, he must pay an annual premium of Rs. 1.5 Lakhs. Therefore, Kabir will be responsible for paying Rs. 1.5 Lakhs every year throughout the policy duration of 15 years.

Participating Endowment Plans

Did you know that insurance companies reward their customers with bonuses?

Yes, you heard it right! Participating Endowment Plans let you get a share of the insurance company's profits. Insurance companies pay a certain fraction of their profits periodically to their customers in the form of bonuses or dividends. You or your nominee will receive bonuses or dividends in addition to the death benefit or maturity benefit.

However, whether or not the insurance company pays bonuses or dividends depends entirely on the company's performance, and there isn't any assurance that they'll do so.

Single Payment Endowment Plans

In this option, you can pay the entire premium in one go. Choosing this option allows you to make single premium payment and be invested and covered for the duration of the policy. Compared to other plans, this plan can be pretty heavy on your pocket since you pay the premium only once. This is usually opted for by people who do not want long-term premium commitments. For instance, this could be opted by a businessman who does not want to depend on future earnings for their investments. This can also be opted by people who have made some one-time gain - say due to the sale of a property, and want to invest it into an Endowment Plan.

Example
Preethi, a businesswoman, wants to purchase an Endowment Plan. She recently received a large amount of money as an inheritance from her father. She decides to invest in a single premium policy since she has adequate capital right now. So, she buys a Single Payment Endowment Plan with a sum assured of Rs. 70 Lakhs for a duration of 30 years.

Under her policy, the entire premium amount can be paid at the time of policy purchase. So, the policy will continue to provide coverage until the term ends and she doesn't have to fret about premium dues or her policy getting lapsed.

Non-participating Endowment Plans

As the name suggests, you do not participate in the profits of the insurance company. As a result, insurers don't pay bonuses or dividends from the profits they make. In non-participating Endowment Plans, you receive death and maturity benefits -

• Maturity Benefit- If you outlive the policy period, you'll receive the maturity payout.

• Death benefitIn the event that you pass away while the policy is active, your nominee will receive a fixed amount as the death benefit.

Limited Payment Endowment Plans

If you choose this option, you need to pay premiums only for a certain period of time. You can pay off your premiums sooner regardless of the policy duration you choose.

So, if you are someone who wants to get rid of the premium-paying liability quickly while ensuring financial protection throughout the duration of the policy, then this option is for you.

Example
Pratik, a 30-year-old man, wants to buy an Endowment Plan. He wants to pay off his premium payments in a few years so he won't have to deal with any financial stress in the later part of his life.

He buys a Limited Payment Endowment Plan with a sum assured of Rs 20 lakhs for a duration of 20 years. His premium payment period is 5 years. Therefore, he can complete his premium payment in 15 years and enjoy the insurance cover for the remaining policy period.

Premium Front Endowment Plans

Premium Front Endowment Plans allow you to choose the amount of premium you are comfortable paying. Based on the premium amount you choose, the sum assured will be calculated.

Example
Lekha, an MNC employee, wishes to purchase an Endowment Plan. She wants to choose a premium she is comfortable paying every year.

Therefore, she decides to purchase a Premium Front Endowment Plan for 20 years and also tells the insurer that she’ll pay a yearly premium of Rs. 50,000.

Then, the insurer calculates the policy sum assured based on the premium she chooses to pay.

Generally, in such cases, the sum assured is calculated by a predetermined 'sum multiple'. It varies across products and typically is ‘10 times the annual premium’.

So, here -

Sum assured = Annual premium x 10

= 50,000 x 10

= 5 Lakhs

Sum Assured Front Endowment Plans

This plan allows you to select the sum assured at the time of purchase, and the premium is decided accordingly.

Example
Barath purchases a Sum Assured Front Endowment Plan for a period of 15 years and chooses the sum assured to be Rs 20 Lakhs. Based on the chosen sum assured, the insurer estimates the premium to be Rs 1 lakh. Therefore, to keep the policy in force, Barath needs to pay a premium of Rs. 1 lakh throughout the premium payment period.
 

Why Should You Buy an Endowment Plan?

An Endowment Plan, also known as a Guaranteed Plan, is a good option to consider if you want to build a savings fund for your long-term goals such as saving for your children’s higher studies, wedding, your retirement, and so on. The plan is a combination of savings and insurance - so apart from helping you save for your goals, it also offers a life cover. It financially safeguards your family if you pass away in the middle of the plan’s tenure.

In this article, we discuss 6 reasons why you should consider buying an Endowment Plan. So, let’s begin!

6 Reasons for Investing in an Endowment Plan

You want to leave a financial legacy for your loved ones

An Endowment Plan is a type of life insurance plan that allows you to save for long-term goals while also allowing you to pass on your money to your loved ones. You can consider investing in it if you wish to leave a guaranteed corpus for your loved ones as a legacy.

Karan, for example, is a 45-year-old single parent who has made significant investments in real estate. He wants to save money and leave a legacy for his 20-year-old daughter so she can pursue all of her goals and live a comfortable life if something unfortunate happens to him. In this case, he can consider purchasing an Endowment Plan.

You are looking for a low-risk financial instrument that offers guaranteed returns

An Endowment Plan is a low-risk insurance plan, where the returns you get are not linked to the performance of the stock market. So, it is a relatively safe option when compared to Unit Linked Insurance Plans, Mutual Funds, and other investments where the returns depend on how the stock market performs.

Also, the returns you get under an Endowment Plan are guaranteed. The amount of money paid under the plan is predefined at the time of purchase.

If you survive till the end of the policy term, the insurance company will pay a maturity benefit, i.e., a lump sum amount to you.

If you pass away while the policy is in force, your nominee will receive a death benefit, i.e., a lump sum amount.

You want to receive a sum of money after a specific number of years to help you achieve your long-term goals

You may have several goals in life, such as -

• Buying a house or a car
• Saving for your retirement
• Saving for your child’s higher education, wedding, etc.

An Endowment Plan can help in saving for all your long-term goals. In exchange for the premiums you pay, it will provide a lump sum payout after a duration chosen by you. This money can be used to buy that house or car, pay for your child's education, or live a worry-free life after retirement.

Kartik's 12-year-old son Chirag, for example, aspires to be a cricketer when he grows up. After finishing his higher studies, he wants to receive cricket training at a renowned foreign institute. So, Kartik decides to invest in an Endowment Plan for a period of ten years in order to fund his son's cricket training. The money payable under the Endowment Plan after ten years can help cover the training institute's fees.

You want to invest money in a systematic manner to preserve your wealth

An Endowment Plan is an excellent way to save for your future needs. If you lack the discipline required to save your money, you can consider investing in this plan. It will help you follow a very disciplined savings path and preserve your wealth. The premiums you pay every year under the plan will result in a substantial payout after a set period of time.

You want to safeguard your family’s financial future

If you are the sole earning member of your family, it is important to be prepared for unforeseen circumstances in life. An Endowment Plan will offer financial protection to your loved ones in the case of your untimely demise during the policy tenure. It will provide your family with a death benefit, i.e., a fixed sum of money. This money can be used by your family to pay off any loans or liabilities or to cover regular expenses such as grocery, electricity bills, school fees, etc.

You want to receive tax benefits

There are dual tax benefits available under an Endowment Plan. So, you can also consider investing in an Endowment Plan if you want to get tax advantages.

• As per Section 80C of the Income Tax Act, 1961, you can get tax deductions up to Rs. 1,50,000 on the premiums you pay every year under an Endowment Plan.
• As per Section 10(10D) of the Income Tax Act, 1961, the payout you or your nominee will receive from the insurance company is entirely exempted from taxation.
   

Wrapping Up!

An Endowment Plan is a low-risk instrument that offers the best of both worlds - insurance and savings. You can consider investing in it if you want to save money systematically and accumulate wealth, while simultaneously providing financial security to your family. You can also invest in it if you wish to leave a financial legacy for your loved ones or if you want to get dual tax benefits under the Income Tax Act, 1961.