Ch. 3: What Are The Types of Endowment Plans?

Anish is looking to buy a laptop for himself. When he searches online, he comes across a wide range of laptops. While some laptops are general-purpose laptops, some are workstation laptops, and some laptops are specifically designed for gaming purposes. There are convertible laptops available too - that come with a combined feature of laptop and tablet. All these laptops differ based on the operating system, processor, storage, battery life, and so on. Out of all these options, Anish likes the convertible laptop. So, he goes ahead and buys it.

Similar to this, Endowment Plans, too, come in a lot of variants. In the previous article, we talked about the benefits of buying an Endowment Plan. In this one, let’s take a look at the types of Endowment Plans available in the market.

Let’s dive right in!

Here are some common types of endowment plans available today -

Regular Payment Endowment Policies

Under this option, you are required to pay the premiums throughout the policy tenure. The premium amount is calculated after taking into consideration the policy duration you choose at the time of purchasing the policy as well as other factors like your age, gender, etc. And then, this premium amount remains constant throughout the policy tenure.

For instance, Ayesha buys a Regular Payment Endowment Plan worth Rs. 1 Crore for a period of 30 years. The annual premium payable under her policy is Rs. 2,00,000. So, Ayesha will have to pay Rs. 2,00,000 for the entire policy tenure, i.e., 30 years.

Here, instead of paying the premiums until the end of the policy duration, you are required to pay the premiums for a specific period of time. These plans allow you to finish your premium liability in fewer years compared to the policy duration you choose. So, you can get the premium paying liability off your chest quickly, and still enjoy the cover for the rest of the duration.

Say you buy a Limited Payment Endowment Policy for a duration of 50 years. You can complete your premium payments in, say, the next 10-15 years and enjoy the insurance cover for the remaining policy tenure.

As the name suggests, you just need to make a single premium payment under this type of endowment plan. At the time of purchasing the policy, you need to pay the entire premium amount in one instalment. And then, you can enjoy the cover for the rest of the policy tenure.

So, say you buy a Single Payment Endowment Policy worth Rs. 1.5 Crore for a duration of 45 years. You can pay the entire premium amount at the time of buying the policy. And enjoy the cover till the policy term ends - without having to worry about the payment due dates or the policy lapsing.

Please note that these plans are comparatively much more expensive, since you pay the premiums only once.

This type of Endowment Plan gives you an opportunity to get a share of the profits of the insurance company. The insurance company periodically declares a specific share of the profits that it will pay to its customers - as bonuses or dividends.

So, along with the death benefit or maturity benefit, you or your nominee will also receive bonuses or dividends under this option. These bonuses or dividends, however, will completely depend on the insurance company’s performance, and there’s no guarantee they’ll be paid every year.

These plans are the exact opposite of Participating Endowment Policies. Here, you do not get a share of the profits made by the insurer in the form of bonuses or dividends.

Non-participating Endowment Plans only offer death and a maturity benefit. If you pass away while the policy is active, your nominee will receive a fixed sum of money. And if you survive the policy tenure, you’ll receive a maturity payout when the policy ends.

Under this plan, you get to choose the sum assured at the time of purchase, and the premium amount is determined accordingly.

For instance, Ekansh, a businessman, wants to buy a Sum Assured Front Endowment Plan for a period of 40 years. He decides to buy the policy with a sum assured of Rs. 1 Crore. Based on this, the insurance company calculates and asks him to pay an annual premium of Rs. 10 Lakh. So, he’ll have to pay a premium of Rs. 10 Lakh throughout the premium payment period to keep his policy active.

Under Premium Front Endowment Policies, you get to choose the premium, i.e., the amount you want to invest. The cover amount will then be calculated based on the premium amount you choose to pay. For example, Nitin, a salaried individual, wishes to purchase an Endowment Policy. He wants to choose a premium that can comfortably fit into his budget. So, he decides to buy a Premium Front Endowment Plan for a duration of 50 years. He tells the insurer that he’ll pay a yearly premium of Rs. 40,000. The insurer, hence, will calculate the policy sum assured on the basis of the annual premium he chooses to pay.

In such cases, a predefined ‘sum multiple’ determines the sum assured. It varies across products and normally depends on the entry age, premium payment term, etc. It, generally, is 10 times the annual premium.

So, in Nitin’s example -
Sum assured = Annual premium x 10
= 40,000 x 10
= 4 Lakhs

So, these are the various types of Endowment Plans available in the market today. While some endowment plans come with different premium payment terms, some offer different savings and investment components, and so on. Hence, before you decide which option to choose, ensure you understand how the plan works - to avoid any issues later on.

And, did you know that, along with choosing the type of plan you want to buy, you can also customise it to your specific requirements? Read the next article to know more about the various customisation options available with an endowment plan!