Endowment Policy

A traditional insurance plan pays out a lump sum assured in the event of the death of the policyholder. The beneficiaries/dependents/nominees of the life insured receive a benefit (called a death benefit) if the worst should come to pass for the insurance holder. An endowment plan works the same way, but has an additional clause that states that a lump sum payment will be made to the insurance holder if he or she survives till the end of a specified period known as the “maturity period”, “endowment policy term” or “survival term”. There are variations to the payout clause in endowment policies – some companies have a lump sum payout on the detection of a critical illness, or other life changing events.

Key Features of Endowment Policies:

·         Sum assured in an endowment policy is payable either on survival to the term or on death occurring within the term.

·         Endowment policies are available as ‘With Profit’ and ‘Without Profit’ plans.

·         Under Endowment policies, bonus for the full term is payable on the date of maturity or in the event of death, whichever is earlier.

·         Premiums for endowment policies can be limited to shorter term or can be paid as single premium.

·         Premiums cease on death or on expiry of the term, whichever is earlier.

Benefits of Endowment Policies:

Endowment policies carry plenty of benefits, a few of which are listed below:

·         An endowment policy will provide insurance cover during the policy term.

·         An endowment policy will pay out a sizeable lump sum amount at the end of the policy term i.e. once the policy has matured.

·         An endowment policy works to serve a dual purpose. Not only does it work as an insurance policy but also serves as a long-term investment offering decent returns.

·         Endowment policies come with tax benefits.

·         In terms of investing, endowment policies are relatively safer than other types of investments and offer returns which are close to those offered by mutual funds.

·         Endowment policies enable long-term savings.

·         With an endowment policy, you can be assured of receiving a considerable amount upon maturity.

·         Most endowment plans will extend insurance coverage and the promise of benefits even after the maturity date, in some cases up to a time when the life insured attains the age of 100.

·         Policy holders have the options of opting for additional riders which provide cover for specific illnesses, critical illnesses, disabilities, etc.

How Do Endowment Policies Work?

Endowment policies are not very different from regular insurance policies. These policies, like insurance policies, not only provide cover to the life insured, but also help them save regularly over a specific period of time. Once the policy has matured and given that the policy holder has survived the policy term, they will receive a lump sum maturity amount which can be utilized for meeting financial needs like purchasing property, children’s education, organizing a wedding or preparing for one’s retirement.