Endowment Policy

In traditional insurance plans, the insurer pays out the lump sum assured in case the policyholder expires. The beneficiaries or dependents or nominees of the policyholder receive a benefit in the event of the policyholder's death. This is called a death benefit. An endowment plan works in a similar way with an additional benefit. In endowment plans, the policyholder is entitled to a lump sum payment if he/she survives till the “maturity period” and completes the “endowment policy term” or “survival term.” Different endowment policies may have different payout clauses – some companies even offer a lump sum payout for a critical illness or other life-changing events. These policies can be good options for investments.

Key Features of Endowment Policies

• The sum assured in endowment policies is payable either in the unfortunate event of the policyholder's death or if the policyholder survives till the date of maturity.

• These policies are available as ‘With Profit’ as well as ‘Without Profit’ plans.

• In case of Endowment policies, the bonus amount for the full term is payable in the event of death or on the date of maturity, whichever is earlier.

• Premiums for such policies can be limited to a shorter term or paid as single premium.

• Premiums discontinue on the policyholder's death or when the policy term expires - whichever is earlier.

Benefits of Endowment Policies

These are a few attractive benefits of endowment policies:

• It provides insurance cover during the entire policy term.

• It pays out a substantial lump sum amount as the policy matures.

• It serves a dual purpose - an insurance policy as well as a long-term investment that offers decent returns.

• It offers tax benefits.

• It is a secure form of investment. Endowment plans are relatively safer than investing in mutual funds or shares and they offer similar returns.

• It enables long-term savings.

• It assures a policyholder of receiving a sizable amount upon maturity of the policy.

• Many endowment plans extend their insurance coverage and benefits even after the maturity date.

• Policyholders can opt for additional riders offering cover for specific illnesses, critical diseases, disabilities, etc.

How Do Endowment Policies Work?

Endowment policies are quite similar to regular insurance policies. They not only provide coverage to the policyholder whose life is insured but also assist them in saving regularly over a specific period. Once the policy matures and the policyholder survives the policy term, he/she receives a lump sum maturity amount.

Who are Endowment Plans for?

One must research well on the benefits, returns on investment, riders, etc. offered by a policy and compare them with the benefits offered by similar investments before deciding to purchase an endowment plan.

A healthy individual may choose to buy a combination of financial products - a life insurance policy as well as other forms of investments that promise good returns and help in saving tax. Alternatively, buying a single endowment plan can provide similar benefits.

While risk takers would prefer purchasing a life insurance policy and investing the bulk of their funds in mutual funds and shares, risk-averse individuals should go for endowment plans to invest their valuable savings securely. Moreover, some endowment policies have ULIP options to invest in several equities and debt schemes. They are tax saving investments with guaranteed returns at maturity, which provide comprehensive life insurance cover. Thus, an endowment plan is a win-win situation for the investor as well as his dependents.

However, in endowment plans, the returns on investment are comparatively lower than those offered by mutual funds, equity funds and debt schemes of similar amounts for similar tenures. However, one must note that endowment plans are first and foremost insurance policies. They just offer added benefits of giving a return on the premiums invested but cannot lucrative returns as other investment options do. One must consider their risk appetite and requirements before taking a major financial decision.

Types of Endowment Policies:

Endowment policies are of three types:

• Unit Linked Endowment - these plans channelize the insurance premiums into multiple units held under a specific investment fund as chosen by the policyholders.

• Full Endowment – these plans guarantee that right from the beginning of the policy, the basic amount ensured to be provided is equal to the death benefit.  The final payout provided by these plans is comparatively higher, depending on the speculated market-based appreciation.

• Low-Cost Endowment – These plans help individuals accumulate the funds required for a particular payment that is due after a specified period, like a mortgage.

Choosing an Endowment Policy

Just like all other insurance products, the market is flooded with numerous types of endowment policies. Buyers must consider several factors, such as individual needs, current life stage, income and risk appetite, etc. while choosing the right endowment insurance policy.   The premiums of endowment plans are considerably pricier as compared to term plans. Therefore, the cost of premiums must also be a deciding factor. The insurance provider’s track record in claim settlement ratio, bonus payments, customer service and the insurer's financial status are some more crucial factors to consider while selecting an endowment policy.  It is advisable to pick a policy with simple terms that are easier to comprehend. Policies with lucrative features and benefits can be quite difficult to comprehend and the precise details of the plan may get lost in the fine print.

Documents Required for Endowment Policies

• Customers are usually required to submit these basic documents while applying for endowment policies:

• Completely filled Application form or Proposal form.

• Recent Photographs.

• Identity Proof (passport, Voter ID card, Aadhaar card, driving license, a letter from a public servant or an authority verifying the person's identity)

• Age Proof (passport, birth certificate, driving license, school leaving certificate, PAN card, etc.)

• Address Proof (utility bills, ration card, bank account statements, Voter ID card, passport, etc.)

• Income Proof (Income tax returns, Income Tax assessment order, employer’s certificate)

• Medical reports (if required)

• PAN Card

Endowment Policy Premium Calculator

Many websites have a tool called the Endowment Plan Premium Calculator. It informs the buyers about the key features of the policy such as the premium amount, surrender value, loan value, maturity value and returns of the policy. These calculators typically ask for information like the age, policy term and amount of sum assured to compute the premium required to be paid towards the endowment policy.

Riders For Endowment Policies

Endowment policies often offer add-on benefits to enhance the protection provided. Some commonly available riders are:

• Accidental death and dismemberment

• Critical illness

• Waiver of premium

• Partial and permanent disability

• Accelerated sum assured

• Hospital cash

Popular Endowment Plans in India

Here are a few popular endowment plans available in India along with their basic features:

Reliance Endowment Plan

• Sum Assured with a bonus on maturity - subject to 100.1% of the premiums paid.

• Death benefit - base Sum Assured plus vested bonuses or 10 times the annualized premium or 105% of all premiums paid.

• Policy term - 10 to 25 years.

• Loan against policy

Kotak Classic Endowment Plan

• Coverage of up to 75 years of the life insured.

• Yearly bonus applicable from the first year of the policy.

• A wide range of term options.

• Tax benefits under 80C of Income Tax Act.

• Riders to enhance protection.

Kotak Premier Endowment Plan

• Guaranteed Additions of 5% of the basic sum assured, during the first five years of the policy

• Yearly bonus from the 6th year onwards.

• Flexible premium paying terms

• 7 additional riders

LIC New Endowment Plan

• Minimum sum assured of Rs.1 lakh

• Death benefit - at least 105% the total premiums paid or 10 times the annualized premium.

• Accidental death and disability riders.

Shriram Life Insurance - New Shri Life

• Life cover along with reversionary bonuses.

• Additional protection through riders.

• Advance premium payment options with a discount.

• Minimum Sum Assured - Rs.50,000.

• Flexible modes of premium payment.

Canceling an Endowment Policy

The cancellation procedure may vary for each insurer. To cancel an Endowment policy, the policyholder must visit or contact their insurance provider. Typically, the policyholders have to submit all the necessary documents such as the original policy document, ID proof, Surrender form or Cancellation Form and a canceled cheque to initiate fund transfer. Upon exiting an endowment policy before its maturity term, the coverage provided by the policy and all the additional benefits will cease to exist.