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Understand The Working Of An Endowment With The Help Of An Illustration

Updated On Dec 16, 2021

We're here to assist you if reading an insurance policy document gives you a headache. Not by giving you a painkiller, but by giving you the tools you need to figure out what's going on.

An endowment policy is a sort of insurance that is designed to help you reach your financial goals while also providing some security.

Endowment policies normally mature (come to an end) once a certain amount of time has passed. As a result, it's especially effective if you're trying to fulfill many financial goals with varied timetables.

Assume you're planning to buy a BTO flat and/or marry within the next few years. You might put the money from a short-term endowment policy toward your down payment and wedding expenses.

Understand The Working Of An Endowment With The Help Of An Illustration

Below are a few things you must understand about the working of an Endowment plan:

  • An Endowment's Benefits

Participating and non-participating policies are the two forms of endowment structures. For brevity's sake, let's call them par and non-par policies.

The assurer collects premiums and invests them in a pooled pool with par policies. You will get a piece of the profit if you buy a par policy.

Your premiums aren't invested with the par fund when you have a non-par policy. This means you are not eligible for any non-guaranteed benefits and do not participate in the profits of the assurer's par fund.

  • Starter Kit For The Endowment Plan

Normally, when you purchase an endowment plan, you will receive the following documents:

  • Life Insurance: A User's Guide

The Life Insurance Association of Singapore has created this pamphlet to offer you general life insurance information.

  • Summary of the Product

This is a condensed summary of the essential aspects of your policy.

Previously known as 'Benefit Illustration,' Policy Illustration is a type of illustration that depicts the benefits of a policy.

These calculations provide you with a ballpark figure for the value of your endowment plan.

Now, using the example below, we'll decode the Policy Illustration. The buyer in this case is a 35-year-old man who wants a 10-year coverage.

  • Investment Return

The investment return is a metric for determining an investment's efficiency or profitability; it quantifies the profit or loss earned on a given investment in relation to the amount invested (the principal). The investment return is reported annually by Brown and other higher education institutions as a benchmark of the endowment's success. Brown's investment portfolio is built to anticipate numerous scenarios that will develop over many years, and incorporate different engines of return that will compensate for each other in a variety of scenarios.

  • It Establishes A Steady Stream Of Revenue

The organization can rely on annual disbursements for its charity activity since the permanent endowment is an invested pool of money that provides a consistent stream of income in perpetuity. The donor or the board of directors might designate funds for endowment purposes. The endowment's purchasing power will be retained by appropriate investment and spending practices. As a result, a fund that generates income today to run a reading recovery program for elementary pupils can be planned to create income in the future to run the same program. Additional gifts from a variety of donors help to expand the endowment over time.

  • Stability And Prestige Are Increased

An endowment that is well-managed gives a message of long-term stability, economic discipline, and financial viability. It improves the organization's reputation and prestige.


The total amount of money in an endowment fund is also called the endowment. That money goes to causes and projects that the organization supports and that reflect the views of its donors. The endowment's board of directors can authorize the use of a fair portion of the endowment's funds for operational and business objectives.

Also read: How Does An Endowment Policy Help In Wealth Appriciation?

Why Smart Investors Choose Endowment Policy?

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.

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