An endowment plan is a product that provides the benefit of insurance as well as savings. Any insurance policy that guarantees death benefit along with providing a maturity benefit can be termed an endowment plan. The policyholder receives a pay-out at maturity, but if he/she dies during the policy term, the nominee is paid the sum assured. An endowment plan can be unit-linked or non-linked.

Primarily endowment policies are of three types — unit-linked endowment plan, with profit endowment plan or participating and without profit or non-participating plans.

1. Unit-Linked Endowment Plans

When you opt for unit-linked endowment plans, the premium paid is invested in different funds of your choice thereby earning you market linked returns.

2. With Profit Endowment Plan or Participating Plans

Under a with-profit endowment plan, the insurance company declares bonuses. The sum assured is payable in case of death or maturity. Bonus is the additional component. The bonus is a part of the profit earned by the insurer.

3. Non, Without Profit Endowment Plans or Non-Participating Plans

These plans offer guaranteed benefits on death as well as maturity.

How Does It Work?

Endowment policies should be a part of every investment portfolio. Endowment plans ensure life insurance coverage, just like other insurance products, and also help you accumulate funds that are paid at maturity. If the insured passes away during the policy tenure, the nominee gets the sum assured. On the other hand, if the insured survives the policy term, he/she is paid a lump-sum amount at maturity. The maturity benefit can be utilised to meet life goals such as children’s marriage or retirement.

What Are Its Features And Benefits?

1. Dual benefits

Life insurance is taken to guard against unforeseen circumstances. An insurance plan ensures the financial stability of the family in case of an unfortunate incident. But along with the insurance cover, it also offers a savings component which helps in creating wealth for the future. An endowment policy essentially provides both death and maturity benefits.

2. Higher returns

An endowment policy is not the only life insurance plan that pays maturity benefits. Products like term plans with return of premium also pay benefit at maturity which is equal to the total premium paid by the customer under the policy. In case of an endowment plan, there is a return on the premium on account of the return from the funds in case of ULIP or Bonus in case of Participating plans or the guaranteed benefit in case of a Non-participating plan

3. Flexibility

Insurance plans may offer certain flexibilities like the premiums which can be paid on a monthly, quarterly, half-yearly or annual basis. Certain plans can have additional features like riders for accidental death, accidental total and partial disability and critical illness etc. Some plans also have premium waiver options for disability and critical illness.

4. Tax benefits

Endowment plans also provide tax benefits. The premiums paid for the policy are eligible for tax deduction under Section 80C of the Income Tax Act, 1961 (the Act). Additionally, the pay-out received from the policy is exempt from taxes under Section 10 (10D) of the Act. Tax benefits are subject to provisions of the Act, as amended from time to time.

5. Long-term savings

An endowment policy is a long-term product. Through the policy, you can save and build wealth systematically over the long term. It inculcates a habit of savings and depending on the type of the policy, the savings grow over a period of time.

Conclusion

Along with being an efficient savings tool, an endowment plan also provides a life insurance cover. The benefits of investing in endowment plans are innumerable.

Also read: Basic Features Of An Endowment Plan

Pros And Cons Of Buying An Endowment Policy