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Endowment Policy

Endowment Plan

Last Updated 01st Dec 2020

  • An endowment plan is a financial instrument that allows you to keep yourself insured and save your income at the same time.
  • The plan provides death benefits like an insurance plan and maturity benefit like a regular investment plan.
  • The pre-decided sum assured is provided as the benefit.
  • Some endowment plans offer bonus facilities.
  • Endowment plans come with rider covers to extend the policy coverage.

What is an Endowment Policy?

An endowment policy is a vehicle that provides both saving options and insurance coverage. This policy allows you to invest your principal and generate the sum assured at maturity like many other investment plans if the policyholder outlives the policy period. Also, it offers death benefit at the sudden demise of the policyholder and provides coverage during critical illness. With this single plan, you can avail the benefits of an insurance plan as well as of an investment plan by paying a single premium. An endowment plan helps you in saving for the future financial requirements and support your loved ones in your absence.

If you are wondering if this plan is suitable for your financial objectives, you should know the various types of this plan, its features and how it works. Here goes all you need to know about the endowment policy.

Types of Endowment Plan

The endowment insurance and saving plan have been categorized in the following four types.

  • Unit Linked Endowment Plan: The unit-linked endowment plan divides your investment into different units and pools them under a particular investment fund. You have the freedom of choosing the fund you want to invest in. The investment stays fixed for the policy term, and you receive the sum assured as either death benefit or maturity benefit. However, the returns under the plan depend primarily on the market condition. Hence, you must have a risk appetite if you want to go for this plan.
  • Full or With Profit Endowment Plan: As the name indicates, the full or with profit endowment plan is safe in nature. What makes this plan secure is the guaranteed sum assured. You get the sum assured as the death benefit. Furthermore, the final amount generated at maturity is relatively higher as it includes the bonus with the sum assured. Hence, if you want a risk free plan, this is the best endowment plan for you.
  • Non-Profit Endowment Plan: The non-profit endowment plan provides the sum assured as the death benefit if the policyholder passes away mid-term and as the maturity benefit if the policyholder outlives the policy tenure. The plan is termed as non-profit, as it only provides the sum assured and no additional bonus.
  • Low-Cost Endowment Plan: The low-cost endowment plan has been drafted to help the investors in collecting funds that are to be paid after a certain period of time. These are best suited for repaying loans and mortgages. If the policyholder passes away in the middle of the policy term, the beneficiary receives the target amount as the sum assured.

Benefits of Endowment Policy

You can avail the following benefits by opting for an endowment policy.

  • Death benefit: At the unfortunate demise of the policyholder, the endowment plan provides the sum assured coupled with the applicable bonuses to the beneficiary. Thus, the policyholder can keep their beloved ones financially secured even in his or her absence.
  • Maturity benefit: The policy generates the sum assured to the policyholder at maturity if the policyholder outlives the policy term. This is known as the maturity benefit. The maturity benefit is free from any tax deduction.
  • Additional bonus: As stated earlier, you can avail bonus under the endowment policy. The bonus money is disbursed along with the sum assured. Note that the benefit of bonus is available only with the with-profit endowment plan. It is also dependent on the excess funds after providing claims and other expenses. Additional bonus can be of two sorts.
    • Reversionary bonus
    • Terminal bonus
  • Rider benefits: The endowment policy offers these below-mentioned rider benefits.
    • Accidental death rider: This rider covers incidents of accidental deaths. In case of the accidental death of the policyholder, this cover offers financial assistance to the beneficiary.
    • Critical illness rider: If the policyholder is diagnosed with any critical illness, the policy provides financial support in a lump sum.
    • Disability rider: This rider provides coverage to the policyholder in case of partial or permanent disability.
    • Hospital allowance rider: This cover generates cash allowance in case of hospitalization. It includes post-hospitalization expenses as well.
    • Premium waiver rider: In case of critical illness and disability, the premium waiver rider can be highly beneficial. By opting for this rider, the policyholder will not be subject to premium payments.
  • Tax benefits: As stated in sections 80C and 10(10D), you can enjoy tax exemption on the premium paid under the endowment policy and the payout generated under the policy at death or maturity.

Features of Endowment Insurance

Below laid out are the noteworthy features of the endowment policy.

  • High returns: The endowment insurance provides the coverage as provided by any other insurance plan. However, the maturity payout under endowment insurance is much higher than the standard insurance policies.
  • Flexibility: You can opt for the policy you want and modify the plan with the additional covers you feel necessary.
  • Easy payment of premium: Under the endowment policy, you can opt for the regular, single or limited payment option for the premiums. The intervals can be on a monthly, quarterly, half-yearly or yearly basis.
  • Survival benefits: Apart from the death benefits, the policyholders are given survival benefits under the policy. You can avail the survival benefits as maturity benefits if you survive the policy period.

Why Should You Buy an Endowment Policy?

The endowment policy has the features of an insurance policy and as well as of an investment policy. The wide range of benefits and features make this plan a great option for many. With this one plan, you can keep yourself insured and save for your future. Here are a few reasons why you should opt for an endowment policy.

  • To keep your dependents and loved ones financially secured in your absence.
  • To build a regular saving habit and to save for your future.
  • To aim for higher returns by taking a few risks.
  • To enjoy tax benefits on the premiums and sum assured.

Checklist when buying an Endowment Policy

Tick the following checklist before you decide to buy an endowment plan.

  • Study the different plans: As mentioned earlier, there are different types of endowment policies available in the market. Study the plans, their features and benefits. Then select the best endowment plan based on your financial goals.
  • Check the rider options: By opting for the additional rider covers along with the standard endowment plan, you can extend the coverage. Ensure the plan you are opting for, offers the rider covers you require.
  • Examine the flexibility: The plan you are going for should offer you enough flexibility in terms of premium payments and modification
  • Bonus facility: Endowment plans offer high returns as they provide additional bonuses along with the sum assured. Your provider and preferred endowment plan must have the bonus facility as it will ensure high returns.
  • Start early: The key to saving significant sums is to start early. The earlier in life you start investing, the more time the money stays invested and the more interest is generated.

Endowment Plan Claim Process

Here goes the claim process under an endowment plan.

Inform the provider immediately after the demise of the policyholder.

Collect the claim form and fill up. The form must have the following details.

  • Signature of the beneficiary
  • Statement of the last doctor of the policyholder
  • Statement of a witness present during the cremation

Submit the duly filled and signed form together with the following documents.

  • Photocopy of the death certificate
  • Photocopy of the autopsy report
  • Photocopy of the police investigation report
  • Photocopy of first information report

Documents Required to purchase an Endowment Plan

You will be required to present the following documents while purchasing an endowment plan.

  • Proof of age
  • Proof of residency
  • Duly filled and signed application form
  • Photograph
  • Medical report (if required)

FAQs

How does an endowment policy work?

A policyholder purchases an endowment plan and pays timely premiums. In case of the sudden demise of the policyholder, the beneficiary receives the sum assured coupled with the added bonus if any. In case the policyholder outlives the policy period, the sum assured and added bonus is generated as maturity benefit.

What is the endowment policy example?

You purchase an endowment plan and pay premiums for the policy period. The policy provider computes the sum assured based on the premiums and tenure. In case the policyholder passes away in the middle of the term, the beneficiary gets the sum assured as a death benefit. In case the policyholder survives the tenure, he receives the sum assured as maturity benefit. Some plans provide a bonus that is added to the sum assured.

What happens when an endowment policy matures?

When an endowment policy matures, and the policyholder survives the period, the policy generates the sum assured together with a bonus as the maturity benefit.

What is the difference between the term plan and endowment plan?

Term insurance complete insurance policy, while the endowment plan is a combination of insurance plan and saving plan. Hence, an endowment plan provides more coverage than a term plan.

How do I sell my endowment policy?

You can surrender the policy to your policy provider. You will receive a percentage of the premiums you have paid till the surrender. The percentage depends on the provider and the left tenure of the policy. You can opt for a paid-up plan, where you simply stop paying the premiums and receive a paid-up value at maturity.

Can you claim back endowment policy?

You can claim endowment policy in case of the sudden demise of the policyholder. Some plans offer coverage during critical illness, disability and accidental death


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