What is an Endowment Policy?
An Endowment policy is an investment plan which comes with a life insurance cover. You pay regular premiums for 5, 10, 15 or more years and get your returns at the end of the policy term. In case of death of the policyholder during the policy term, the nominee receives life cover benefit.
Endowment plans are popular for investing in long term goals like child's education or marriage or for planning your retirement. Both the premiums paid and the investment returns are tax free. You must keep in mind that endowment plans are conservative plans and designed more at conserving your capital and hence has lower risks.
Types of Endowment Policies
Endowment policies can be broadly classified under the following 2 categories:
Guaranteed Returns Endowment Plan
In such plans, the exact amount which will be paid to you is known in advance. It gives you an accurate amount and hence the returns which you will receive at maturity.
With-profits Endowment Plan
In this type of plan, the returns which you receive will depend on the performance of the company. Depending on how the company performs you will receive bonus and additions which get added to your plan and are paid to you on maturity. As a result, the returns are not guaranteed and you cannot know the exact amount which you will receive on maturity.
Benefits of Endowment Policy
Returns
coverage
savings
income in lumpsum or
monthly payouts
premiums and maturity
amount
Who should buy an Endowment Policy?
You should consider investing in Endowment Policies if:
- You want to long term savings
- Don't want to take too much risk
- Want to plan for expenses like child's marriage or education which in a systematic way
- Want to save tax
How does an Endowment Policy work?
You pay regular premiums - monthly, quarterly, half-yearly or yearly
These plans are long term investments
The company invests your money in low risk financial instruments
At the end of the policy term, the company pays you the invested amount with gains
The returns could be guaranteed or linked to the company performance
You enjoy a life insurance coverage throughout the policy term
Endowment Vs Money Back Policy
| Endowment Policy | Money Back Policy |
| Returns on Maturity | Returns are regular intervals |
| Lower premiums | Comparatively higher premiums |
| Long term investment | Long term investment |
| Offers tax benefits | Offers tax benefits |
Endowment Policy Vs Term Insurance
| Endowment Policy | Term Insurance |
| Returns on Maturity | No returns |
| Low insurance coverage | Pure risk cover with high insurance cover |
| Higher premiums | Lower premiums |
| Best for long term investments | Best for life insurance cover |
| Offers tax benefits | Offers tax benefits |
Endowment Policy Vs ULIPs
| Endowment Policy | ULIPs |
| Low risk investments | High risk investments |
| Stable, guaranteed returns | Chances or higher returns |
| Less flexibility to exit | Can exit after 5 years |
| No flexibility in investment options | Offers a variety of investment options - high risk to low risk |
| Offers tax benefits | Offers tax benefits |
How to Choose an Endowment Policy?
- Decide on the amount you wish to invest
- Decide on the number of years you wish to pay premiums
- Decide on policy term - when you wish to get your returns
- Choose between “Guaranteed Returns” or “With Profits” plan
- Go ahead and invest
Riders for Endowment Policy
Some of the popular riders which can be taken with Endowment plans:
Critical Illness Rider
Accidental Death & Disability Benefit Rider
Term Rider
Waiver of Premium Rider
FAQs on Endowment Plan
What is the Claim Process of Endowment Plan?
Maturity Claim:
In case your bank details are updated with the insurer, the maturity amount will be credited to the bank account. You do not need to do anything.
Death Claim:
this is a standard process across life insurance plans
- Fill up with claim form
- Submit required documents
- Insurance company verifies the documents and claim details
- Claim is settled
Documents required for purchasing an endowment plan
- KYC Documents - like PAN, Aadhaar
- Income Documents - life Payslips, IT Returns or Bank Statements
- Address Proof - like Aadhaar