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What is an Endowment Plan?

Endowment plans are a type of life insurance plans which blend the benefits of a life insurance and an investment tool. Endowment plans can act as an investment tool providing a lump sum amount at the end of the policy term known as maturity benefit. As endowment plans are a type of life insurance plan, these plans provide financial support to the family of the life assured in case of unforeseen demise of the life assured. Usually endowment plans are participating plans which allow wealth appreciation, that is these plans participate in the profits of the insurance provider according to their performance in the market. Hence, additional bonuses (if any) are declared upon the endowment policy at the end of each policy year.

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It is a form of investment which gives you guaranteed returns mentioned while investing along with life coverage.

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Types of Endowment Plans

Below mentioned are the different types of endowment plans:

  • Unit Linked Endowment Plans: Unit-linked endowments plans incorporate life insurance and are a sort of fixed-term savings plan.The premium paid to the plan is invested in various market-linked investment alternatives chosen by the life assured under this plan.This type of endowment plan is ideal for people who have a high-risk appetite. The return of investment under such plans depends on the performance of investment options in the market.
  • Full Profit Endowment Plans: Under full profit endowment plans, the life assured receives the basic sum assured. The overall payout, however, varies depending on the bonuses recorded on the endowment policy at the conclusion of each year.The bonus is provided at the time of plan maturity or at the end of policy term.
  • Low-Cost Endowment Plans: Low-cost endowment plans help the life assured to accumulate funds which can be paid after a certain time period, usually for the repayment of mortgage.
  • Non-profit Endowment Plans: Under non-profit endowment plans a maturity benefit is provided to the life assured in case he/she survives the entire policy tenure. In case the life assured passes away anytime during the policy tenure a death benefit is provided to the nominee.

Features Of An Endowment Plans

Following are some of the key features of an endowment plans-

  • Death and Survival Benefits: In the event of the insured's death, the beneficiary/nominee of the policy receives the sum promised as well as bonuses.Furthermore, if the insured lives longer than the insurance policy, he or she is eligible to the basic sum.
  • Higher returns: An endowment policy can help you build a future corpus while also ensuring your family's financial stability. The payout for survival and death benefits of an endowment plan is larger than that of a standard life insurance, such as a Term Plan.
  • Premium payment frequency: The policyholder can pay a premium based on the insurance he or she has selected. Payments can be made monthly, quarterly, half-yearly, or annually.
  • Flexibility in Cover: Riders such as critical disease, total permanent disability, and accidental death can be added to the base plan to increase the life insurance coverage. In addition, a few plans give premium payment waivers in the event of total permanent disability or serious illness.
  • Tax Benefits: Under Section 80C and Section 10(10D) of the Income Tax Act of 1961, the policyholder is eligible for a tax exemption on premium payments, maturity, and final payouts.
    Low Risk: Because the money is not invested immediately in equities or the stock market, traditional endowment policies are thought to be safer than other alternative investments such as mutual funds or ULIPs.

Benefits of Endowment Plans

Following are benefits that come along with a endowment e policy -

  • Maturity Benefits: Endowment plans pay a maturity benefit to the life guaranteed if he or she lives to the end of the policy term. If there are any bonuses declared on the endowment insurance, in addition to the maturity benefit, a bonus is also granted at the time of maturity.
  • Wealth Appreciation: Endowment plans are participating insurance plans that allow wealth appreciation. Every year, bonuses are announced on the endowment policy, which are additional profits delivered to the life insured. On the policy, the insurance company can declare reversionary or terminal bonuses.The bonuses are provided with the maturity benefit at the end of the policy term.
  • Additional Coverage: The life assured has the option of adding riders to the endowment policy, which are additional coverages that may be purchased with the endowment policy for a fee. Accidental Death Benefit, Critical Illness Benefit, Waiver of Premium, and other riders are common endowment plan riders.The rider enhances the power of the base cover of your endowment policy.
  • Tax Benefits: Under endowment policy the life assured can avail tax exemptions as premium paid for an endowment policy qualify for tax exemption under Section 80C and 10(10D) of the Income Tax Act, 1961. Maturity benefits payable under an endowment plan are also eligible for tax exemptions.

How Does An Endowment Plan Work?

Endowment plans are similar to normal insurance policies in that they provide a steady stream of income. They don't just provide life insurance; they also help you save on a regular basis. When the policy matures, providing the policyholder has survived the policy period, he or she will get a lump sum payment. This money can be utilised for a variety of purposes, including purchasing a home, paying for the education of your child, and putting money down for retirement.

Who Should Buy the Endowment Policy?

Endowment policies are one of a kind life insurance policy. The policyholders can decide the term amount while enjoying the benefits of a life insurance policy. If you belong to one of the following categories, you must consider buying an endowment policy.

Primary Earners:

Individuals responsible for their family's financial well-being, such as salaried employees, self-employed individuals, or business owners.

Long-Term Planners:

Those looking to secure funds for significant life events like children’s education or marriage.

Risk-Averse Investors:

People who prefer low-risk investments with guaranteed returns rather than market-linked options.

Tax-Savvy Individuals:

Those interested in tax benefits under Sections 80C and 10(10D) of the Income Tax Act, which apply to both premiums and maturity benefits.

Why Should an Individual Buy an Endowment Policy?

Purchasing an endowment policy offers several advantages:

  • Dual Benefits: It combines life insurance coverage with a savings component, ensuring financial security for dependents.
  • Guaranteed Returns: Policyholders receive a fixed sum at maturity, providing a sense of financial stability regardless of market conditions.
  • Disciplined Savings: Regular premium payments encourage a habit of saving, helping individuals accumulate wealth over time.
  • Tax Benefits: Premiums paid are eligible for tax deductions, while maturity proceeds are generally tax-free, enhancing overall returns.

Claim Process of Endowment Plan

The claim process for endowment plans typically involves the following steps:

  • Notification: The claimant must inform the insurance company about the event (death or maturity) by submitting a claim form.
  • Documentation: Required documents include the policy document, identity proof, death certificate (in case of death claims), and any additional documents specified by the insurer.
  • Verification: The insurer reviews the submitted documents to verify the claim's legitimacy.
  • Settlement: Upon successful verification, the insurer processes the claim and disburses the payout to the beneficiary or policyholder as per the policy terms.

Why Choose InsuranceDekho?

Here are some good reasons why you should choose InsuranceDekho while purchasing an endowment plan: .

  • Easy Policy Issuance: At InsuranceDekho you can easily purchase an endowment policy easily by following these simple steps:
    1. Provide your personal details such as Name, Age, Mobile Number and Date of Birth
    2. Compare available endowment plans at once
    3. Select a plan that fits your needs
    4. Pay the premium and submit the required documents.
  • Committed Customer Service: Our customer support team is available all 7 days of the week to provide you with effective solutions for your queries. Our aim is to be always readily available to provide you with best solutions regarding your queries.
  • Availability of Best Plans: We have partnered with some of the top-notch insurance providers in India that offer you endowment plans. We strive to provide you with the best insurance plans offered by best insurance providers in India.
  • Smooth Claim Settlement: At InsuranceDekho we aim to provide a quick and claim settlement, to ensure that our customers are financially satisfied in difficult times.

How To Buy Endowment Plans With InsuranceDekho?

Purchasing an endowment plan at InsuranceDekho is easy and a quick process. You can compare and purchase an endowment by following these simple steps: .

  • Provide Details: To compare different quotes enter your details such as mobile number, name, date of birth and dender. Then click on ‘View Instant Quotes.’
  • Compare Endowment Plans: Plans that match your requirement will get displayed and you can compare and choose a plan that best suits your requirements.
  • Make Payment: Choose from the available endowment plans and make the premium payment via net banking, e-wallets or debit/credit cards.
  • Submit Documents: Submit documents such as ID Proof (Aadhaar Card, Pan Card, Voter ID etc.), Address Proof (Electricity bill, Passport, Ration card etc.), passport size photos, salary slips and a filled proposal form along with medical records for policy issuance.

Term Plan vs. Endowment Plan

The following table entails comparison between term insurance and endowment plan.

Feature

Term Plan

Endowment Plan

Purpose

Pure life insurance

Life cover with savings component

Returns

No benefit upon policy maturity.

Guaranteed savings awarded after policy matures.

Premiums

Generally have lower premiums.

Premiums are higher due to the savings feature.

Risk Level

Has higher risk as once the term ends, the cover is not valid.

Risks are lower as policyholders receive invested amount as term money.

Ideal For

Those seeking pure insurance

Individuals wanting savings + cover

Term plans provide life insurance without any return on premiums, while endowment plans offer both life cover and a maturity benefit.

Endowment Policy Vs ULIPs

Although both ULIPs and endowment plans serve similar results, the final returns vary, as both insurance plans function differently.

Feature

Endowment Plans

ULIPs

Type of Investment

Traditional insurance + Savings

Insurance + Market-linked investment.

Returns

Fixed returns

Returns are variable depending on the market performance.

Lock-in period

3-5 years

Minimum 5 years

Investment Control

Policyholders can decide the final return amount.

Policyholders can choose which funds to invest in.

Endowment policies have simpler investment systems as compared to ULIPs. ULIPs provide transparency in fund performance and provide detailed information about investment performance. Endowment policies, on the other hand, have fixed ways of investing policyholders’ money which are fixed internally.

Documents Required for Endowment Plan

To purchase an endowment plan, you typically need:

  • Completed application form
  • Recent passport-sized photograph
  • Address proof (e.g., utility bill)
  • Proof of income (e.g., salary slip or tax return)
  • For claims, additional documents may include:
  • Death certificate (for death claims)
  • Policy document
  • Identity proof. (PAN Card/Aadhar Card)

Are Endowment Plans Tax-Free?

Yes, endowment plans offer tax benefits under Indian tax laws. Premiums paid are eligible for deductions under Section 80C of the Income Tax Act, and the maturity amount received is generally exempt from tax under Section 10(10D), subject to certain conditions.

Which Endowment Policy to Choose for Different Situations?

Selecting the right endowment policy depends on individual circumstances:

  • For Young Families: Choose policies with higher life cover to secure family finances.
  • For Retirement Planning: Opt for plans with longer terms that accumulate significant savings.
  • For Children's Education: Look for policies that provide substantial payouts around your child's college age.
  • For Tax Savings: Select plans that maximize deductions and provide tax-free maturity benefits.

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FAQ About What is an Endowment Plan?

  • What are the different types of bonuses under endowment plans?

    There are 2 different types of bonuses available under the endowment plan which are Reversionary Bonus and Terminal Bonus. 

  • What is the minimum and maximum entry age for purchasing an endowment plan?

    The minimum entry age for purchasing an endowment plan is 18 years and for most endowment plans the maximum age is 75 years. 

  • What is Reversionary Bonus?

    Reversionary bonus is additional money which is added to death benefit or maturity benefit and is provided at the time of maturity of policy or at the end of the policy term.

  • What are the key features of an endowment plan?

    Below mentioned are some key features of an endowment plan:

    • Provides death benefit along with maturity benefit
    • Additional bonus is declared upon the policy
    • Flexibility to choose premium payment frequency
    • Availability of tax benefits
  • What are the different types of endowment plans?

    Different types of endowment plans are Unit-Linked Endowment plan, Full Profit Endowment plan, Low-cost endowment plan and Non-profit endowment plan. 

  • Why should I purchase an endowment plan?

    Endowment plans provide life cover and death benefit in case of an unforeseen demise of the life assured during the policy tenure. Along with death benefit endowment plans also offer maturity benefits and allow wealth appreciation.

  • What are the documents required to purchase an endowment plan?

    Below mentioned are the documents required to purchase an endowment plan:

    • Photo ID Proof
    • Address Proof
    • Salary Slips
    • Medical Records
    • Passport Size Photographs
    • Filled Proposal Form
  • Who should purchase an endowment plan?

    Endowment plans are ideal for people who want to build a corpus to fulfill their investment goals for a long run. 

  • Can I purchase an endowment plan for my child?

    Yes, you can purchase an endowment plan for your child in case you want to be the policyholder and your child will receive the death benefit in case of your unforeseen demise.

  • Can I increase the sum assured of my endowment policy?

    Yes, you can increase the sum assured of your endowment policy if it is allowed as per the insurance provider. 

  • What is an endowment policy?

    An endowment policy is a life insurance product that combines life coverage with a savings component, providing a lump sum payout at maturity or in case of death.

  • Can I take a loan against my endowment policy?

    Yes, many endowment policies allow you to take loans against their surrender value in case of financial emergencies.

  • How long do I need to pay premiums?

    Premium payment terms vary by policy but typically range from 10 to 20 years or until maturity.

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