Understanding The Features Of An Endowment Plan

An endowment policy protects you for a specified duration. If the policyholder dies during the plan tenure, the nominees receive a sum assured along with the accrued bonuses. Upon maturity, the insured will get the sum assured, along with the bonus for the term of the policy. Thanks to such policies, the individual gets the dual benefit of investment and savings.

These plans can be great investment options as they come with guaranteed additions and let you grow a corpus that can be accumulated to meet future financial needs.

What are the features of an endowment plan?

An endowment plan is a combination of life insurance and savings. Here are some of its features:

  • The beneficiary receives the maturity amount that can be used to fulfil family obligations or contribute to a retirement corpus.
  • The endowment policy invests money in safe fixed income instruments.
  • The policy can be enhanced by choosing riders (add-on benefits) for which extra premiums have to be paid.
  • The premiums can be paid according to the convenience of the insured (every month, quarter, or even via a single payment). Endowment plans are ideal for those with a not-so-regular income source.
  • Tax deduction under Section 80C (up to Rs 1.5 Lakhs a year) can be availed.

Here are some stand-out features of an endowment plan:

Provides Death Benefit

An endowment plan combines investment and life insurance and hence helps protect the life of the assured. If the life assured passes away during the policy tenure, the entire sum assured amount is provided to the nominee. Via an endowment plan, family members can expect to have a financial resource to maintain their lifestyle even when the life assured is not around.

Offers Guaranteed Additions

Many endowment plans are participating plans. The insurance provider declares annual additional bonuses on the insurance plan. These plans offer guaranteed additions after the end of the premium payment term. The guaranteed additions are provided alongside the death benefit in case the life assured passes away during the policy tenure or alongside the maturity benefit upon plan maturity.

What are the things to consider before buying an endowment plan?

Just like any financial product, you should consider some things before proceeding to buy an endowment plan, such as:

Key benefit:

An endowment plan offers life insurance cover across the policy term. You enjoy the survival benefit upon maturity.

Purpose of buying a plan:

An endowment plan enables savings based on financial goals. It offers tax benefits and ensures risk protection. Therefore, if you tend to spend money excessively, you can opt for an endowment plan to instil financial discipline and fulfil long-term saving goals. Again, if you are looking to save tax, an endowment plan could work for you.

Types of Endowment Plans:  

There are many types of endowment plans available in the market today. You should choose the plans according to financial goals and income. The premiums vary across insurers. You can use a life insurance calculator to understand what kind of plan would work for you.

Here are some of the plans that you will come across:

  • Unit-Linked Endowment Plan: It offers mortality cover along with other investment options like investing in stocks.
  • Full Endowment Plan:It offers a sum assured equal to the death benefit at the inception of the policy. The final payout is much higher than the sum assured.
  • Low-Cost Endowment Plan: It aims to accumulate funds in a period to cover an existing loan or mortgage. A minimum amount is given to the beneficiary or the dependents for paying off the loan amount upon the death of the insured or policy maturity.
  • Non-Participating Endowment Plans: It does not participate in the profits of the company. The sum assured and the profits payable upon maturity are defined at the inception of the policy.

These plans provide life insurance along with an investment option. The nominee receives a death benefit in case the life assured passes away during the policy term. If the life assured survives the entire policy term, he/she gets the maturity benefit. Buy this plan to enjoy the guaranteed additions and tax benefits offered. Take the help of a life insurance calculator to make your decision.