Endowment Policy - Saving Plans, Features & Benefits
Table of Contents
In endowment plans, the policyholder gets his/her sum assured on a fixed date in future as per the policy terms and conditions. However, in case of sudden death of the policyholder, the insurance company will pay the sum assured (plus the bonus, if any) to the nominee of the policy. Besides, it is also useful to secure yourself or your family post-retirement or to meet various financial needs such as funding for children's education and/or marriage or buying a house.
What are the Types of Endowment Plans?
There are three types of Endowment plans that you can choose from
Unit Linked Endowment Plan
Under Unit Linked policies, the insurance premiums are bifurcated into multiple units held under a specific investment fund which can be chosen by the policyholders.
Full /With Profit Endowment
Under this plan, the basic amount i.e. sum assured will be provided to the policy holder. This amount is guaranteed right from the start of the policy. However, the final payout provided is comparatively higher depending on the bonuses announced from time to time by the company. The bonuses once declared form a part of the policy are paid out in the event of death of the policyholder or maturity of the policy.
Low-Cost Endowment
This type of endowment plan was designed with an intention of allowing the policyholder to accumulate the funds which have to be paid after a specified time period, usually mortgage.
Non-profit Endowment
These are endowment plans which do not participate in the profits generated by the company (bonuses). However, in order to make them competitive against other products, companies offer guaranteed additions in these plans which help in generating returns for the policy holder.
Features of Endowment plan
Death along with Survival benefits: In case of demise of the insured, the beneficiary/nominee of the policy gets the sum assured along with bonuses. Also, the insured is allowed to get the sum assured if he/she outlives the policy.
Higher returns: An endowment policy is helpful in building a corpus for future and providing financial protection to your family. The payout for survival benefit and death benefit of an endowment plan is higher than that of a pure life insurance policy i.e. Term Plans.
Premium payment frequency: The policyholder can make payment of the premium based on the policy chosen by him/her. Payment can be done on monthly, quarterly, half-yearly, and on yearly basis.
Flexibility in Cover: Riders like critical illness, total permanent disability, and accidental death can be added to the base plan and enhance the life cover. In addition to this, there are a few plans that offer waiver in the premium payment on total permanent disability or critical illness.
Tax Benefits: The policyholder is entitled to get tax exemption on both premium payments, maturity and final payouts under the Section 80C and Section 10(10D) of the Income Tax Act, 1961.
Low Risk: Traditional Endowment policies are considered safer as compared to the other investment option such as the Mutual Fund or the ULIP’s because the amount here is not directly invested in equity funds or the stock market.
Riders Available Under Endowment Plan
The following benefits can be chosen with an endowment plan, these are optional.
- Critical Illness: If the policyholder is diagnosed with a critical illness like cancer, heart attack, paralysis, kidney failure, etc. The policyholder will get a lump sum amount.
- Accidental Death: When the policyholder opts for this additional rider, the insurer will pay accidental death benefit in addition to the Death Benefit to be given to the beneficiary.
- Disability: The disability rider proves to be highly beneficial to the policyholder if he/she suffers from a partial or permanent disability.
- Waiver of premium: Through this rider the insured is not liable to pay the premiums of the endowment policy in case the policyholder suffers from a critical illness or permanently disabled.
- Hospital Cash Benefit: Hospital Cash Benefit provides you for daily allowance as well as post- hospitalization benefits, in case of hospitalization of the policyholder.
Benefits of Endowment Plan
- Provides Insurance Cover: An endowment policy provides insurance cover during the policy term.
- Lump sum payout: It provides a lump sum payout when the policy matures (i.e. at the end of the policy term)
- Serves with a dual purpose: An endowment policy serves you with a dual purpose as it not only works as an insurance policy but also offers you with long term investment benefit.
- Provides you with a Tax Benefit: You are entitled to get tax exemption on both premium payments, maturity and final payouts under the Section 80C and Section 10(10D) of the Income Tax Act, 1961.
- Offers Low-Risk Investments: When it comes to investing, endowment policies are considered as a relatively safer option than other types of investments.
- Offers Long-term savings: An endowment policy offers long term savings. You can choose a policy term ranging from 10, 15, 20, 30 to 40 years.
- Provides option to add riders: With Endowment policies, you get an option to enhance your policy by opting for additional riders like critical illnesses, waiver of premium, family income benefit, accidental death benefit, and accidental permanent total / partial disability benefit.
- Additional Bonuses: Insurance companies also declare bonuses. Here, the bonus is the extra amount of money added to the proceeds, which is distributed to a policyholder by an insurer.
However, policyholders of a with profit policy only are entitled to share in these profits. Also, payment of bonus is conditional on the life insurance company which has surplus funds after expenses, costs, claims have been paid for that year.
What Are The Documents Required To Apply For An Endowment Policy?
Following are the documents required to apply for an endowment policy:
- Photograph
- Age proof
- Address proof/ proof of residence
- Fully filled application form/proposal form
Conclusion
In simple terms, you should buy an endowment policy which is simple and does not come with features and benefits which are difficult to comprehend.
