Endowment Policy - Types, Benefits and Riders Explained
Updated On Jul 24, 2021
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An endowment policy is the ultimate combination of life insurance and savings. This life insurance policy type provides insurance cover along with the benefits of a savings plan. An endowment plan policyholder can save regularly over a period of time to accumulate a significant corpus only to enjoy it at maturity. In case the policyholder survives the policy term, they receive the sum assured amount in a lump sum. An endowment policy is an ideal option for those looking forward to fulfilling their financial goals like arranging for children's education or their marriage, planning their retirement, purchasing a house or traveling to other countries.
Types of Endowment Policy
An endowment policy can be categorized into:
- Unit Linked Endowment Plan - Premium paid is divided into 2 parts. One part is used to purchase units in different investment funds while the second part goes toward your life insurance cover.
- Guaranteed Endowment Plan - Policyholder receives guaranteed benefits. At maturity, the policyholder receives the Sum Assured along with Loyalty Additions, if any. In case the policyholder survives the term, they receive Guaranteed Sum Assured on Maturity, Guaranteed Yearly Additions and Guaranteed Loyalty Addition.
- Full/With Profit Endowment Plan - Policyholder receives Sum Assured as promised at the time of policy purchase. The final payout, including the surplus amount, may be higher on policy maturity or death of the insured, however, it depends on whether or not the insurance company declares a bonus.
- Low-cost Endowment Plan - Policyholders are allowed to accumulate funds, usually paid after a determined period. In the case of a policyholder's death during the policy term, the nominees or beneficiaries receive sum assured.
- Non-profit Endowment Plan - Policyholders get guaranteed additions rather than bonuses.
Benefits of Endowment Policy
Some of the prime benefits of an endowment policy include:
- You get a higher return on investment.
- You get the choice of frequency of premium payment (monthly, quarterly, half-yearly or annual basis).
- You get the flexibility to choose additional covers.
- You get benefits both in the case of survival and death.
- You get exempted from tax on the premium paid under Section 80C and Section 10(10D) of the Income Tax Act.
- You get the opportunity to grow your money with less or no risk at all.
Riders Available with Endowment Policy
Some of the common riders available with an endowment policy are:
- Premium Waiver Rider - Remaining premiums get waived off by the insurance company in case of death of a policyholder.
- Terminal/Critical Illness Rider - Policyholder gets a lump sum amount in case they are diagnosed with a terminal illness.
- Accidental Death Benefit Rider - The Insurance company pays an additional death benefit along with the existing death benefit to the beneficiaries or nominees in case the policyholder passes away due to an unfortunate event of accident.
Whether you are a salaried professional, self-employed individual or a businessman, go ahead and invest in an endowment policy that matches your financial requirements and goals to the tee. Endowment policy would be the best choice for you to gain investment without risking a lot.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.