Everything you Need to Know About an Endowment Policy

An endowment policy is a kind of life insurance plan that provides the policyholder with a combo of both savings plan as well as insurance cover. This plan helps you with regular savings over a particular time period, so that you can receive a lump sum amount upon policy maturity, in case the policyholder survives during the term of the policy.

Types of Endowment Plan

Here is a list of types of endowment plans that one can choose from:

• Unit Link Endowment Plan: Under this type of endowment plan, the payable insurance premiums are divided into several units held under a particular investment fund which can be opted by a policyholder.
• Low Cost Endowment Plan: This is the type of endowment plan which is designed specifically to assist the life assured in accumulating required funds for the future, which needs to be paid after a specific period of time.
• Full/With Profit Endowment: Under this type of endowment plan, the sum assured will be offered to the life assured. This sum is guaranteed from the beginning of the insurance plan. However, the final payout offered is relatively higher based on the bonus announced by the insurance provider from time to time.
• Non Profit Endowment: These are the type of endowment plans that do not form any part of the profits generated by the company(bonus). However, to make them competitive against other insurance instruments, insurance providers offer guaranteed additions in such insurance plans, which assist them in generating returns for the policyholder.

Salient Features of an Endowment Plan

The key features of an endowment plan are explained as follows:

• Death and Survival Benefit: In the event of the death of the policyholder, the nominee of the plan gets a sum assured alongside bonuses. Moreover, the policyholder is allowed to receive the sum assured in case they outlive the plan.
• Premium Payment Frequency: The policyholder is allowed to make payment of the premium depending upon the plan selected by them. The payment is payable on a monthly, quarterly, half-yearly and yearly basis.
• Higher Returns: An endowment plan helps the policyholder in creating a corpus for the future and offering their family the required financial protection. The payout of an endowment plan for death and survival benefit is higher as compared to a term insurance plan.
• Tax Benefit: Under an endowment plan, the policyholder is allowed to receive tax benefit on premium payment, final payout and maturity as per section 80C and 10(10D) of the Income Tax Act.
• Flexibility in Cover: A policyholder can add riders like total permanent disability, critical illness and accidental death to the standard insurance plan in order to extend the coverage of the plan.

Benefits of an Endowment Policy

Here are some of the benefits offered under an endowment plan highlighted below:

• An endowment plan offers insurance coverage during the term of the plan.
• An endowment plan offers dual benefits i.e it not only provides insurance coverage but also provides long term investment benefit.
• A lump sum amount is paid at the time of maturity of the insurance plan.
• A policyholder is entitled to receive tax benefits on both payable premium, final and maturity payouts as per sec 80C and sec 10(10D) of the Income Tax Act.
• When we talk about investment, an endowment plan is known to be a comparatively safer option than any other type of investment.

Must Read: How Does An Endowment Policy Work?

How To Compare Endowment Plans The Right Way?

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.