Endowment Policy - Meaning, Types & Benefits

Life insurance plans not only cover the risk of premature death, but they also help you create a corpus for your financial goals if you choose savings-oriented plans.

Life insurance companies offer different types of savings-oriented plans, and endowment plans are one of them. Let’s understand what these plans are all about.

An endowment plan is a traditional, savings-oriented life insurance policy that provides a guaranteed³ benefit payable on death or maturity of the policy. Endowment plans help you to save a guaranteed³ corpus for your financial goals. The insurance coverage adds protection as the plan pays a death benefit if the insured dies during the policy tenure.

Some of the salient features of endowment plans are as follows –

• These plans usually come for a tenure ranging from 5 years and going up to 30 or 35 years.
• Some plans also offer bonus addition. Such plans are called participating or with-profit endowment plans.
• The plan’s benefit is not linked to the capital market. As such, you can earn guaranteed³ benefits on death or maturity, irrespective of market volatility.

Broadly, there are different types of endowment plans that you can find in the market. Here’s a look at them –

• Participating endowment plans
  As mentioned earlier, participating endowment plans are those that earn bonuses on the sum assured. Every year, if the insurance company makes a profit, it might distribute a part of the earned profits among its policyholders in the form of a bonus. Participating endowment plans participate in bonus declarations and earn additional returns on the sum assured.


• Non-participating endowment plans
  Contrary to participating plans, non-participating endowment plans do not earn bonuses.


• Whole life endowment plans
  Some endowment plans allow coverage up to 99 or 100 years of age. Such plans are called whole-life endowment plans. The premium payment tenure is usually limited to a specified tenure while you can enjoy lifelong coverage. In the case of death, an assured death benefit is paid. On the other hand, if the policy matures, an assured maturity benefit is paid.


• Whole life endowment plans
  Some endowment plans allow coverage up to 99 or 100 years of age. Such plans are called whole-life endowment plans. The premium payment tenure is usually limited to a specified tenure while you can enjoy lifelong coverage. In the case of death, an assured death benefit is paid. On the other hand, if the policy matures, an assured maturity benefit is paid.


• Anticipated endowment plans
  Popularly called money-back insurance plans, these policies pay a part of the sum assured during the policy tenure in the form of money-back benefits. This makes the planned liquid and gives you funds during the policy tenure. Moreover, the death benefit is not affected by the money-back benefits that you have received. In the case of death during the policy tenure, the full death benefit is paid.


• Child plans
  Child plans are endowment plans designed with the objective of creating a guaranteed³ corpus for the child’s future financial needs. Most child plans come with a premium waiver rider. This rider waives off the premium if the parent dies during the policy tenure. The plan is not affected, and it continues till maturity. The insurer contributes the premium on the parent’s behalf. On maturity, the promised maturity benefit is paid.
  Child plans, thus, ensure that parents can create a guaranteed³ corpus for their child, which remains unaffected even if they die prematurely.


• Single premium endowment plans
  
  These are endowment plans that require only a single premium paid at the onset of the policy. Thereafter, you don’t have to pay any premium during the policy tenure, and you can enjoy coverage throughout.

Endowment plans can be a good addition to your portfolio because of the following benefits –

• Guaranteed³ benefits
  Endowment plans appeal to risk-averse individuals who want to create a secured corpus for their goals. Since the death or maturity benefit is not related to the performance of the financial markets, you don’t have to worry about a market crash or fall affecting your returns. Your corpus will remain secured against market volatility and help you create an assured fund for your needs.


• Attractive returns
  The bonus additions will generate attractive returns if you choose participating endowment plans. Even non-participating plans allow you to earn returns through wealth boosters, loyalty additions, guaranteed³ additions, etc., that help enhance the benefit payable on death or maturity.


• Insurance and savings in one
  Besides creating a corpus for your financial goals, endowment plans also offer insurance coverage. Thus, in the case of an unfortunate demise of the life insured, the endowment policy would pay a guaranteed³ death benefit to the family. This benefit will help the family deal with the financial loss that they might suffer.


• Tax benefits²
  Lastly, endowment plans also prove to be a tax-efficient saving avenue. The total amount of premiums you pay for the policy, up to 10% of the total sum assured, is allowed as an income tax deduction U/S 80C of the Income Tax Act, 1961. Any death benefit received, including bonus and other additions, is always tax-free. Also, provided the premium is up to 10% of the total sum assured, the complete maturity benefit you receive, including bonus and other additions, will also be tax-free under Section 10(10D)¹.
  Thus, with endowment plans, you can save taxes when you invest and also create a tax-free corpus.

Understand what endowment plans are, how they work, and their types and benefits. Assess the plans available in the market and choose one that matches your investment needs and requirements. Align the plan with your goals and start saving towards a guaranteed³ corpus and also enjoy life insurance protection.