Endowment Life Insurance - Definition, Types, Features and Benefits

Endowment insurance is a type of life insurance policy that provides an insurance cover and savings opportunity. It allows you to save money regularly for a specific term. It is an excellent way to save your long-term goals like child marriage, education, building retirement funds, etc. If you survive the policy term, you get a lump sum maturity amount along with the accrued returns on the principal amount.The insurance companies usually pay the maturity amount on a fixed date as per the policy terms. However, in the event of your unfortunate demise during the policy period, the insurer will pay the sum assured and the bonus to the policy’s nominee. Also Read: What is Life Insurance: Meaning, Benefits, Types & How Does it Work

Over the years, as the life insurance needs of the people have evolved, the insurance companies offer a variety of endowment plans. There are four types of endowment life insurance policies, which are discussed below.

• Non-profit Endowment Plan As the name suggests, the non-profit endowment plans do not participate in the insurance company’s profits. This means, as a policyholder, you do not get the bonus or returns generated from your investments. However, to attract investments in non-profit endowment policies, the insurance companies offer guaranteed additions that help generate returns for the policyholders.
• Low-cost endowment plan This type of endowment life insurance policy is specially designed to help the policyholders accumulate long-term wealth that they may need for specific purposes or after a particular duration like repaying the mortgage, child’s education fees, etc.
• Full endowment plan Under this type of endowment life insurance policy, the insurance company pays the basic amount, i.e., the sum assured to the policyholder. This amount is pre-determined at the time of buying the policy. However, the final amount that the policyholder receives is usually must higher based on the bonuses earned. The insurance companies pay the bonus to the policyholder upon policy maturity or to the nominee upon the policyholder’s demise.Now that you know what an endowment plan is and its types, it would help to know its features and benefits.

• High returns potential An endowment policy is an excellent investment option that allows you to build a corpus for your future goals and, at the same time, provide financial protection to your family. Generally, the pay-out you receive, i.e., the survival benefit or the death benefit from an endowment plan, is higher than life insurance products like a term plan where you don’t get any bonus or accrued returns.
• Tax Benefits Like any other insurance life insurance policy, the premium you pay for an endowment plan is eligible for tax advantage under section 80C of the IT Act. You can get a tax benefit up to Rs. 1.5 lakhs in a financial year. Also, the maturity proceeds you received are entirely tax-free under Section 10(10D) of the IT Act.
• Low-risk investment Investments in endowment plans are considerably low-risk options compared to mutual funds or ULIPs, where the amount is directly invested in equity-related funds or in the stock market to generate returns for the investors. Thus, you can be assured to get valuable returns with minimal risk.

The insurance market in India has evolved significantly in the past few years, and insurance companies offer a variety of endowment plans. While you can easily compare the features and benefits of different plans online, you must consider certain vital factors while choosing the right policy for your family that are discussed below.

• Purchase an insurance cover at an early age When it comes to buying a life insurance policy, it is better to buy it at a young age. Generally, insurance experts and financial advisors suggest that you purchase life insurance as soon as you draw your first salary. Also, since endowment policy has an investment component when you buy early, you have a longer time to allow your money to grow, and you can build a larger corpus. Also, when you purchase an endowment plan early, it facilitates disciplined savings.
• Flexibility in premium payment mode Today, most insurance companies in India give endowment plan buyers the flexibility to choose the premium payment mode. For example, if you are a salaried employee and have a steady income source, you can opt for a regular premium payment plan. In such plans, you can pay the premium periodically, i.e., monthly, quarterly, bi-yearly, or annually.However, if you are a self-employed professional or a business owner with irregular income, you can opt for a single premium endowment plan or a limited premium payment plan. So, when you compare the plans from different insurance companies, choose an insurer that gives you flexibility in premium payment and choose a plan to suit your needs.
• Leverage the benefits of riders Riders are additional coverage options that you can purchase voluntarily by paying an additional premium and extending the coverage scope of your regular policy. However, some insurance companies offer riders as an inbuilt feature, and you must leverage its benefits.Some popular built-in riders available with an endowment insurance policy include education endowment, marriage endowment, double endowment, etc.
• Be wary of terms and conditions related to bonus payments The insurance companies generally declare bonuses for the endowment life insurance policyholders based on the company’s performance during a specific period. When the insurance companies generate profits from their investments, they distribute a part of the to policyholders as per the policy terms at the end of the financial year.
• Returns offered Apart from offering the dual benefits of insurance and savings, many endowment plans offer a combination of guaranteed and non-guaranteed returns to the policyholders.The guaranteed returns such as additions are fixed at the time of buying the policy, and it is paid to the policyholder upon policy maturity or to the nominee if the policyholder passes away during the policy term.The non-guaranteed returns are bonuses that are variable and depend on the performance of the investments.

An endowment insurance policy is an excellent investment that allows you to build a corpus for your future goals while enjoying the peace of mind knowing that your family’s financial future is protected even in your absence. So, invest in an endowment plan now and become financially disciplined with your savings so that you can enjoy the corpus later upon policy’s maturity.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.