Endowment Plan

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What is an Endowment Policy? 

An endowment policy is a type of life insurance policy that offers insurance coverage against the risk of death of an individual due to natural or accident. An endowment policy is designed to cover such unforeseen and unfortunate events to protect your family and loved ones from the emotional and financial distress caused due to such events. An endowment policy is designed to cover the risk of death, in addition, if the insured outlives the policy tenure then he/she is eligible to receive ‘maturity benefit’ which on the other hand is not offered under a term insurance plan. Therefore, an endowment policy offers 2 main benefits i.e. coverage against untimely events like death or disability,the  and offers maturity benefit to the insured after completing the policy tenure. 

Under an endowment policy, the death benefit is paid to the nominee or the beneficiary in the event of the insured during the policy tenure while the maturity benefit is paid to the insured when he/she outlives the specific period i.e. the policy tenure. Life insurance companies offer such endowment plans.

Types of Endowment Policies

An endowment Policy is a type of life insurance cover created to offer insurance cover and guaranteed savings to the insured. The plan offers both death and maturity benefits as the key features. The death benefit is paid to the nominee in case of the death of the insured during the policy tenure, while the maturity benefit is paid to the insured in case the insured survives the policy tenure. The Indian insurance sector is flooded with numerous endowment policies which are typical of the following two types:

Type of Endowment PolicyParticulars
Participating Endowment PoliciesParticipating endowment policies are those which participate in the profits of the company. The profits earned by the insurance company is distributed amongst the policyholders of the participating endowment policies. Only the participating endowment policies are eligible to earn and accrue bonuses.
Non-Participating Endowment PoliciesA non-participating endowment policy is completely opposite of a participating endowment policy. Under a non-participating endowment policy, the policyholders are not eligible to earn profits or bonus on their investments. Even if the insurance provider announces a bonus, it is not paid to the non-participating endowment policyholders.

Benefits of Endowment Policy

Endowment Policy offers a handful of benefits to the insured. This policy is designed to offer the following benefits to the insured. Let us understand the salient features of the endowment policies and what makes them so beneficial:

  1. Maturity Benefit:

Endowment policies are designed to create guaranteed savings by creating a pool of savings. These guaranteed savings creates a substantial amount that is paid to the insured as a ‘maturity benefit’ at the end of the policy tenure. 

        2. Death Benefit: 

In the event of the death of the insured during the policy tenure, the nominee receives the death benefit equivalent to the insurance cover opted by the insured at the time of policy purchase. In this manner, you can create a financial legacy for your loved ones.

      3. Tax Benefit: 

Endowment policies can also be used as a tax-saving instrument as the premiums paid can be used to reduce tax liability under section 80C of the income tax act. Insured can avail tax deduction of up to INR 1.50 Lakhs on the premium amount. 

4. Bonuses: 

An endowment policy is designed to create a pool of savings and if the insured purchases the full endowment plan then he/she is eligible to receive bonuses accrued over the years as a result of profits earned by the insurance company.

5. Riders: 

Endowment policies offer the facility to add riders to the base plan to make them robust. Policyholders can add various riders like accidental death benefit rider, critical illness rider, accident total or partial disability rider, family income benefit rider, etc. to the base policy and enhance the policy benefits.

6. Loan Facility:
An insured can avail policy loan under the endowment policy. This facility is designed to help the insured to meet financial needs. 

7. Surrender Benefit:
Endowment Plans have a guaranteed surrender benefit, based on which loan is provided to the policyholder.

There are multiple other benefits available in endowment plans which vary and depend on the specific plan.

What is Covered in an Endowment Plan? 

Under an endowment policy, an insured receives insurance cover against death. In addition, to cover the risk of death, an endowment policy also offers maturity benefits equivalent to the basic sum assured pre-determined by the insured at the time of policy purchase. An endowment policy is the best instrument that offers investment opportunity, insurance cover and tax benefit all at the same time. 

What is not Covered in an Endowment Plan?

Certain types of death are not covered under an endowment policy. The following is the list of types of death that are not covered under an endowment plan:

  • Death caused due to overdose of drugs
  • Death caused due to alcohol consumption
  • Death caused while committing an illegal activity
  • Death caused due to sexually transmitted diseases like HIV or AIDS
  • Death due to self-inflicted injuries
  • Death caused due to participation in hazardous activity

How does an Endowment Policy Work? 

An Endowment Insurance policy is a usual insurance policy designed to offer insurance cover against the death risk. In addition to life cover, an endowment policy also offers to help you create a savings pool by investing by way of premium on a regular basis. In the event of maturity of the insurance policy, the insured is eligible to receive the basic sum assured along with bonuses as determined by the insurance company from time to time. However, in the event of the death of the insured during the policy tenure, the nominee or the beneficiary is eligible to receive the death benefit. In case, the insured had opted for a rider then in the event of an unforeseen event or death or disability, the rider benefit is paid either to the insured or the nominee as the case may be. 

While choosing the best endowment policy an insured must keep in mind the following things:

  1. The best time to buy an endowment policy is to begin early as the premium amount is less and the insured gets a longer tenure to invest.
  2. Before buying an endowment policy it is best to understand the different types of endowment policies available in the market as it will make decision making easier
  3. Opt riders that are suitable and in line with your insurance needs and goals as it will help not only to strengthen the investment but in times of financial need it will provide financial security
  4. The market is flooded with numerous plans therefore carry out extensive research about the features and benefits of the plan.
  5. It is also important to keep in mind the track record of the insurance provider, their claim settlement ratio, customer service, etc. before buying an endowment policy

Eligibility and Documents Required for Buying an Endowment Policy

The eligibility criteria for purchasing an endowment policy differs from insurance provider to provider. The insurance segment is flooded with numerous options so one should purchase an endowment policy based on their personal financial needs and goals. The following is the list of documents that you need to submit for buying an endowment policy.

  • Duly signed proposal form
  • Age of Proof: Birth Certificate, Pan Card, Aadhar Card, Passport, etc.
  • Address Proof: Aadhar Card, Electricity Bill, Gas Bill, Telephone Bill, etc.
  • Identity Proof: PAN Card, Aadhar Card, Passport, etc.
  • Recent Passport Sized Photograph
  • Income documents if opting high sum assured and paying the high premium amount.

Who Should Opt for an Endowment Plan?

Endowment policies are designed for creating a savings corpus across a longer tenure. These plans are designed to offer three-fold benefits namely creating savings corpus, providing insurance cover and financial security in the event of the death of insured

Considering the above-mentioned benefits, we believe that an endowment plan is best suited for individuals who want to create a savings corpus that can be utilised in the future. Additionally, an endowment plan is designed to provide financial discipline as the premium is used to create a savings pool that can be used in times of financial contingencies and to safeguard the financial future of the family in the event of the untimely demise of the insured.

An endowment policy is best to meet the long-term financial needs and goals like a child’s education, child’s marriage, a long vacation, etc. 

Best Endowment Policy in India (2021) 

The following is a list of the best endowment policies in India and their specifications

Name of the PlanAge CriteriaMaturity AgePolicy TenureSum Assured
HDFC Life Sampoorna Samridhi Plus

Min: 30 days

Max: 60 years

Min: 18 years

Max: 75 years

Min: 15 years

Max: 40 years

Min: INR 65463

Max: No limit

LIC’s New Endowment Plan

Min: 8 years

Max: 55 years

Max 75 years

Min 12 years

Max 35 years

Min INR 1 Lakh

Max: No Limit

Reliance Life Insurance Super Endowment Plan

Min 8 years

Max 60 years

Min 22 years

Max 75 years

14 years / 20 years

Min INR 1 Lakh

Max: No Limit

Bajaj Allianz Save Assure Plan

Min 1 year

Max 60 year

Min 18 years 

Max 75 years

15 years / 17 years

Min INR 1 Lakh

Max: No Limit

SBI Life Smart Bachat

Option A:

Minimum 6 Years

Maximum: 50 years

Option B: 

Minimum: 18 years

Maximum: 50 years

65 years

12 years to 25 years

15 years to 25 years

20 years to 25 years

Min INR 1 Lakh

Max: No Limit

Tax Benefits of Endowment Plans

An endowment policy offers tax relief to the insured under various sections of the income tax act, 1961. The following are the tax exemptions that the insured or nominee can claim under an endowment policy.

Tax Benefit SectionTax Benefit Allowed
Section 80CThe premium paid towards a term insurance policy is allowed as a deduction from taxable income U/S 80C up to INR 1.5 lakhs per annum
Section 10 (10D)

If the term plan pays any maturity benefit in the form of premium refunds, such a benefit is allowed as a tax-free income in the hands of the policyholder provided the premium is not more than 10% of the sum assured. 

The death benefit received by the nominee in the event of the death of the insured is also eligible for tax exemption.

Endowment Insurance Riders 

Riders are the optional benefits that can be added to the base policy to amplify the benefits of the base plan. Various insurance companies provide a wide range of riders to the insured to choose and opt. However, the following is the list of the most common riders that can be attached with an endowment policy.

RiderMeaning
Accidental death and disablement riderAs the name suggests, this rider is designed to offer additional benefit in the event of the death of the insured due to an accident. In other words, the nominee of such endowment policy shall receive a death benefit of the base plan and an additional death benefit in case of death of the insured due to accident.
Critical illness riderAs the name suggests, under this rider the insured shall be paid the rider sum assured in the event of diagnosis or detection of a critical illness.
Premium waiver riderThis plan is helpful if the policyholder is not in a condition to pay the future premium amounts of his/her endowment policy due to diagnosis of critical illness or in the event of total or partial disability.
Total or partial disability riderUnder this rider, the insured shall be paid the rider sum assured in the event of total or partial disability caused due to accident or natural. This rider is beneficial to overcome the financial and medical expenses incurred to the insured or his/her family.
Hospital Cash BenefitThis rider is designed to provide the insured with daily cash allowance in the event of hospitalization. This rider is helpful as it covers all pre-hospitalization and post-hospitalization expenses.
Family income benefit riderIt pays regular incomes to the family for a specific period after the insured dies during the policy tenure

Endowment Policy FAQs

  • 1. Is income from endowment life taxable?

    No, the maturity benefits received at the end of policy tenure as maturity proceeds are eligible for tax exemption under section 10 (10D) of the income tax act,1961.

  • 2. How to file a claim for an endowment plan?

    In the event of the death of the insured, the nominee or the beneficiary is required to inform the insurance provider about the death and then submit a claim form along with all required and relevant documents.

  • 3. Are there endowment life plans with 100% guaranteed returns?

    The guaranteed returns under an endowment life plan is the death benefit received by the nominee in the event of the death of the insured and the maturity benefit at the time of policy maturity.

  • 4. Under what situation should I invest in an endowment plan?

    An endowment plan is for individuals looking for a long-term investment plan for creating a savings pool and insurance cover both at the same time.

  • 5. How much life cover is offered in an endowment life policy?

    The insurance cover offered under an endowment life policy differs from one insurance provider to another. 

  • 6. How much maturity amount will I get under an endowment life policy?

    Basic sum assured along with vested simple reversionary bonuses and final additional bonus if any is paid as maturity amount under an endowment policy.

  • 7. What if I stop paying a premium for endowment life policy?

    If you stop paying a premium for endowment life policy the policy automatically lapses ceasing the risk cover and other benefits.

  • 8. Can I surrender my endowment life policy?

    Yes, you can surrender your endowment life policy anytime before the maturity of the policy tenure.

  • 9. Can I withdraw money from my endowment life policy?

    Partial withdrawal from endowment policy is possible, kindly check the terms and conditions of partial withdrawal beforehand.

  • 10. Can I avail loan on my endowment life policy?

    Yes, many of the endowment policies offer loan facilities to the insured to overcome financial emergencies.

  • 11. Should I avoid investing in an endowment life insurance policy?

    An endowment policy is one of the best instruments that offer insurance cover, Savings options and tax benefits all at the same time. So, you can think of investing in an endowment life insurance policy.

  • 12. Which is a better investment: Endowment Policy or Term Life?

    Investing decision must be based on the financial needs and goals of an individual however here is a quick table indicating the differences between the two:

    Endowment policyTerm Life Policy
    Endowment policy offers insurance cover along with savings opportunityTerm Insurance is designed to offer financial protection in the event of the death of the insured
    The premium amount is higher of an endowment policyThe premium amount is lower of term insurance plan
    The higher sum assured as compared to the term insurance plan is not available under endowment policyTerm insurance plans offer higher risk coverage i.e. sum assured
  • 13. Where to invest: Endowment Policy or Money Back Plan?

    Investing decision must be based on the financial needs and goals of an individual however here is a quick table indicating the differences between the two:
     

    ParticularsEndowment PolicyMoney-Back Plan
    Receipt term Under an endowment policy, the repayment is made as maturity benefit at the end of policy tenure along with bonuses if anyUnder a money-back plan, the insured receives repayment at regular intervals in a timely manner
    Death BenefitSum assured along with applicable bonuses if any plus rider benefit if anySum assured along with applicable bonuses if any plus rider benefit if any
    Who should buyAn individual looking for long term investment instrument specifically designed to create savings poolSuitable for an individual looking for regular income flow in a timely manner
  • 14. Which is better: Endowment Policy or ULIP?

    Here is the basic difference between Endowment Plans and ULIPs. However, which one you need to choose depends on your requirement.
     

    Endowment PlanULIP Plans
    Endowment plans offer insurance cum savings optionULIP plans are designed to offer insurance cum investment option
    The investment made in endowment policy cannot be trackedThe investment made in ULIP plans can be tracked
    Endowment policies offer guaranteed returnsULIP plans returns are based on the performance of funds in the market
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