Understanding How An Endowment Plan Works
Updated On Nov 05, 2021
Endowment plans are a very unique type of life insurance plans. These plans are also known as investment cum life insurance plans. Under endowment policies a maturity benefit is provided to the life assured in case they survive the entire policy tenure. This plan allows you to invest your money over time and helps you build a corpus for the future. One of the unique features of endowment plans is that this plan allows wealth appreciation i.e. under this type of policy yearly bonuses are declared by the insurance company upon the policy on the basis of the insurance provider. Endowment policies also provide financial security to the family of the life assured in case of an untimely demise of the life assured during the policy tenure.
Features of an Endowment Policy
Below mentioned are some features of endowment policy:
- Serves dual purposes of investment and life cover.
- Survival benefits known as maturity benefits are provided in case the policyholder survives the entire policy tenure.
- High liquidity
- Financial security is provided to the family of the life assured in case of life assured’s untimely demise during the policy tenure.
- Option to avail loan against the policy in case of unforeseen circumstances.
- One can avail tax exemptions under an endowment policy.
Different Types of an Endowment Policy
Endowment plans are a type of life insurance policy but there are different categories of endowment policy from which a person can choose from. Different endowment plans have different purpose and features, below mentioned are the different types of endowment policy:
- Unit Linked Endowment Plans: Unit linked endowment policy is savings plans which also provides life cover for a fixed term. Under this type of endowment policy part of the premiums paid are invested in different market linked investment options. The returns under this type of endowment policy depends on the performance of the investment options chosen by the life assured.
- Full Profit Endowment Plans: Full profit endowment policies allow wealth appreciation, the final payout is higher because of the bonuses declared upon the endowment policy at the end of each policy year. The bonus shall be provided along the maturity benefit or the death benefit.
- Low-Cost Endowment Plans: Low cost endowment policy allows the life assured to grow a corpus which can be used for repayment of mortgages.
- Non-profit Endowment Plans: Non profit endowment policies are the basic type endowment plans which provide a maturity benefit to the life assured at the end of policy tenure in case the life assured survives the entire policy term. Such an endowment policy also provides a death benefit in case of an untimely demise of the life assured during the policy tenure.
Endowment plans are a combination of life insurance and investment tools which also offers wealth appreciation. Endowment plans are participating life insurance plans.