What Is an Endowment Life Insurance Plan?
Published On Mar 02, 2021 12:00 AM By InsuranceDekho
Table of Contents
What are Life Insurance Endowment Plan?
The endowment plan is a type of life insurance plan that gives you a mix of both, i.e. an insurance cover and a retirement plan. If the insured dies within the policy term or on the expiration of the policy if he/she survives the term, the life insurance endowment policy pays the entire sum assured to the beneficiaries. This maturity amount may be used to fulfil different financial needs, such as financing retirement, education for children and/or marriage, or buying a home.
Features of Endowment Plans
Endowment policies offer a whole range of features, which are given below:
- The policy assures fixed returns, thus helping you meet your financial goals and secure your family's future.
- It offers twin benefits of life cover and savings. Also, the returns are tax-free, and as such returns are higher.
- Options to pay the premium on a monthly, half-yearly, and on annual basis is available.
- Policies come with zero risks, and as long as the premiums are paid on time, all benefits are safe.
- It offers additional bonuses, which is the extra amount of money that the policyholder gets.
- These policies are non-linked. These policies will not be dependent on market returns.
Also Read:- Things to Consider Before Purchasing an Endowment Plan
Type of Endowment Plans
Endowment policies are dual-purpose. You may use an endowment policy to create a risk-free retirement corpus, thus offering family financial security in case of an adverse occurrence. The different types of endowment policies are as follows:
1. Unit Linked Endowment Plan
It is a contract for fixed-term investment that still includes the value of life assurance. Under this choice of the plan, the premium paid by the insured person, as decided by the insured person, is bifurcated into multiple units kept under a specific investment fund. The return on investment completely relies on the fund's market efficiency.
2. Full/With Profit Endowment
The basic sum assured equal to the death benefit is given to the policyholder under this plan option. This amount is assured from the start of the policy. In comparison, the actual payout paid to the policyholder is comparatively higher, as it contains the cumulative sum assured and additional bonus (if any)
3. Low-Cost Endowment
This form of an endowment policy is intended to allow the policyholder to accumulate funds, that is paid after a defined time Low-cost endowment policies are usually used for the repayment of loans, mortgages, and so on.
4. Non-Profit Endowment
There are endowment policies that do not partake in the company's earnings (bonuses). To keep them attractive against other products, firms provide guaranteed additions to these policies that allow the policyholder to earn returns.
Benefits of Endowment Plans
Following are the benefits avaialable under a Endowment plan:
- Insurance protection during the insurance period is provided. When the policy matures, it gives a lump sum payout
- It serves you with a dual purpose because it not only acts as an insurance policy but also provides you with long-term benefits through savings.
- Under Section 80C, 10(10D) of the IT Act, 1961, you get tax deductions/exemptions for all premiums, maturity, and final payouts.
- As a comparatively safer choice than other forms of investment, they are considered.
By selecting additional riders such as critical illnesses, premium waiver, accidental death benefit, and so on, you get an option to improve your policy.
- Often, insurance providers announce bonuses. The benefit here is the additional amount of money attributed to the proceeds, which is distributed from an insurer to a policyholder.
Endowment policies are insurance plans that have assured benefits in the form of the cumulative sum assured along with various bonuses to the policyholder upon the maturity of the policy or to the policy holder's nominee(s) in the case of the policyholder's death before the maturity of the term. Endowment funds are simply insurance tools that provide the policyholder with the added benefit of offering a savings option.
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