Endowment Policy

A complete guide on endowment plans to understand about its features, benefits, types and how it works.
Check Life Insurance Policies
Buy Now
3 min
03-September-2024

Life insurance plays a vital role in both savings and investment planning. Among its various types, endowment plans stand out by offering both insurance coverage and investment benefits. These plans provide financial security for you and your family while helping you grow wealth over time. Investing in an endowment policy is a smart step toward securing your future and achieving long-term financial goals. This article explores all aspects of endowment policies, helping you understand their benefits and make an informed choice for a financially secure future.

What is an endowment plan?

An endowment plan is a life insurance policy that provides coverage for a specified period, usually ranging from 10 to 30 years. Unlike term insurance, which only offers a death cover, endowment policies also accumulate a cash value over time, making them a combination of insurance and investment. At the end of the policy term or upon the insured's death, the policyholder receives the sum assured along with the accumulated bonuses.

How does an endowment plan work?

An endowment insurance policy works by collecting premiums from policyholders and investing them in various financial instruments like bonds, equities, and government securities. The insurer calculates the policy's sum assured and declares annual bonuses based on the policy's performance. The endowment insurance policy meaning lies in its dual purpose: it provides a life cover to the insured and serves as a savings tool. It is particularly beneficial for individuals looking to achieve long-term financial goals, such as funding education, purchasing property, or planning retirement. Upon maturity or in the event of death, the policyholder or nominee receives the sum assured along with accrued bonuses, offering both financial security and disciplined savings.

Also, read: How life insurance works

A step-by-step guide to getting endowment life insurance plans

Here is a step-by-step process to get endowment life insurance plan:

  • Assess your financial goals: Determine your financial objectives and whether an endowment assurance policy aligns with them.
  • Compare plans: Research various endowment assurance policies, comparing features, benefits, and premiums.
  • Consult an advisor: Speak with a financial advisor to understand the policy's terms and potential returns.
  • Choose the insurer: Select a reputable insurance provider with a strong track record.
  • Complete the application: Fill out the application form accurately, undergo a medical examination if required, and submit the necessary documents.
  • Review and purchase: Review the policy terms carefully before finalising your purchase.

What are the different types of endowment plans?

Endowment plans are diverse, catering to various financial goals and risk appetites. Here is a breakdown of the different types of endowment plans:

  • Traditional endowment policy: This plan guarantees a fixed sum assured along with bonuses upon maturity or death, making it a low-risk option for conservative investors. It is ideal for individuals seeking steady returns while ensuring financial security for their families during unforeseen circumstances.
  • Unit-linked endowment policy: Premiums are invested in market-linked funds, providing the potential for higher returns. However, these plans carry market-related risks, making them suitable for those with a higher risk tolerance. Investors can choose between equity, debt, or balanced funds, allowing flexibility to align investments with their financial goals.
  • With-profit endowment policy: These policies participate in the insurer’s profits, offering bonuses based on the company's performance, adding an element of growth to the policy. This combination of life cover and profit participation appeals to individuals seeking gradual wealth accumulation with financial protection.
  • Without-profit endowment policy: Unlike with-profit policies, these do not participate in the insurer’s profits and provide only a fixed sum assured, offering stability without the prospect of additional bonuses. Such policies are perfect for risk-averse individuals prioritising guaranteed payouts over uncertain returns.
  • Guaranteed endowment policy: This plan ensures a fixed payout upon maturity or in case of the policyholder’s demise. It is ideal for individuals seeking financial security with assured benefits, regardless of market fluctuations, making it a low-risk investment.
  • Limited premium payment endowment policy: In this plan, policyholders pay premiums for a shorter duration while enjoying coverage for the entire term. It is beneficial for those who prefer to complete payments early while ensuring long-term financial stability.
  • Money-back endowment policy: This plan provides periodic payouts at regular intervals before maturity, offering liquidity along with life cover. It is suitable for individuals who need financial support at different stages of life while still securing a lump sum at maturity.

Each type of endowment plan serves different financial objectives, allowing you to choose one that best aligns with your financial goals and risk preference.

What are the features of an endowment plan?

Here are some of the key features of endowment plan:

  • Dual benefits: Endowment policies offer both death cover and maturity benefits, providing financial protection and savings.
  • Flexible premium payment: Policyholders can choose between single premium or regular premium payment options based on their financial preferences.
  • Loan facility: Most endowment plans offer a loan facility against the policy's cash value, providing liquidity during emergencies.
  • Bonus declarations: Insurers declare annual bonuses based on the policy's performance, enhancing the policyholder's returns.
  • Surrender value: Policyholders can surrender their endowment policy before maturity and receive the surrender value, subject to terms and conditions.

What are the limitations of endowment plans?

Following are the some key limitations of endowment plans:

Lower returns: Compared to other investment options, life insurance endowment policies often provide lower returns, primarily due to their conservative nature. Understanding the endowment insurance policy meaning helps clarify their focus on safety and guaranteed benefits rather than high yields.

High premiums: Endowment policies typically require higher premiums, which may strain your budget compared to term insurance.

Limited flexibility: These policies have rigid terms and conditions, offering limited flexibility in modifying coverage or premium amounts.

Long-term commitment: Endowment policies require a long-term commitment, and early surrender may result in significant financial loss.

How can an endowment policy help secure financial future?

Following is some of the reasons why you must consider investing in endowment plans:

  • Financial security: Endowment plans offer a combination of insurance coverage and investment benefits, providing financial security to you and your family in case of unfortunate events like death or disability.
  • Long-term savings: These plans help you accumulate wealth over time through disciplined savings and investment growth, ensuring a steady source of funds for future financial needs.
  • Tax benefits: Premiums paid towards endowment policies qualify for tax deductions under Section 80C of the Income Tax Act, reducing your taxable income and providing tax savings.
  • Maturity benefits: Upon policy maturity, you receive the sum assured along with accrued bonuses, providing a lump sum for fulfilling long-term financial goals like buying a house or planning for retirement.

Eligibility criteria for endowment plans: Who can apply?

The eligibility criteria for endowment plans are rather straightforward.

  • Minimum entry age: 18 years
  • Maximum entry age: 65 years
  • Policy term: 10 to 30 years
  • Premium payment term: Single premium or regular premium payment options available

Documents required for buying endowment plans

To invest in an endowment insurance or a life insurance endowment policy, you need to provide specific documents for verification. These include:

Documents needed to complete the application

  • Age proof: Birth certificate, passport, or Aadhaar card.
  • Identity proof: PAN card, Aadhaar card, passport, or Voter ID.
  • Address proof: Utility bills, rental agreement, or Aadhaar card.
  • Income proof: Salary slips, bank statements, or income tax returns to validate your financial eligibility.
  • Passport-sized photographs: For identity confirmation.
  • Proposal form: A duly completed proposal form is mandatory for the insurer to assess and approve your policy.

Documents needed for maturity claim

To claim maturity benefits, submit the following documents:

  • Original policy document for verification.
  • Duly filled maturity claim form provided by the insurer.
  • Identity and address proof of the policyholder.
  • Cancelled cheque or bank details for fund transfer.

Documents needed for death claim

For a death claim, beneficiaries must provide:

  • Original policy document as proof of coverage.
  • Death certificate issued by the local authority.
  • Claim form filled and signed by the nominee.
  • Medical records and cause of death proof if required.
  • Nominee’s ID proof and bank details for claim processing.

Ensuring accurate documentation facilitates a smooth and quick process.

What is the claim process of endowment plan?

Following are the claim processes in case of death or maturity:

Death claim:

  • Notify the insurer: In the event of the insured's death, the nominee or beneficiary must inform the insurance company as soon as possible.
  • Documentation: Submit necessary documents such as the death certificate, policy document, and claim form to the insurer.
  • Verification: The insurer will verify the claim documents and assess the validity of the claim.
  • Settlement: Upon successful verification, the insurer settles the death benefit by paying the sum assured along with any accrued bonuses to the nominee or beneficiary.

Maturity claim:

  • Policy maturity: Upon completion of the policy term, the policyholder needs to notify the insurer regarding the maturity of the policy.
  • Documentation: Submit the maturity claim form, policy document, and identity/address proof to the insurer.
  • Calculation: The insurer calculates the maturity proceeds based on the sum assured and accrued bonuses.
  • Payment: Upon verification, the insurer pays the maturity amount to the policyholder as per the terms of the policy.

Also read: Term insurance maturity benefits

Difference between endowment and money back policy

Know the difference between endowment policy vs. money back policy:

Feature Endowment policy Money back policy
Maturity benefit Lump sum payout at maturity Periodic payouts during the policy term
Survival benefits No survival benefits during the term Periodic survival benefits
Premiums Higher premiums Lower premiums
Flexibility Less flexible More flexible
Investment component Investment-cum-insurance plan Pure insurance-cum-savings plan

 

Difference between endowment and ULIP

Here is a quick overview of endowment policy vs. ULIP:

Feature Endowment policy ULIP
Investment Option Fixed returns on investments Market-linked returns
Flexibility Less flexible More flexible
Risk Low-risk investment Market risk involved
Transparency Transparent investment Transparency varies
Charges Fixed charges Variable charges

 

What happens when an endowment plan matures?

When an endowment plan matures, the policyholder receives the sum assured along with accrued bonuses as maturity proceeds. This lump sum amount can be used to fulfill various financial goals like funding education, buying a house, or planning for retirement.

Do endowment plans offer tax benefits?

Yes, endowment plans offer tax benefits on both premiums paid and maturity proceeds. Premiums paid towards endowment policies are eligible for tax deductions under Section 80C of the Income Tax Act. Additionally, the maturity proceeds received by the policyholder or nominee are tax-free under Section 10(10D) of the Income Tax Act.

Conclusion

In conclusion, endowment plans are a valuable financial tool that provides comprehensive insurance coverage and investment benefits. These plans offer financial security, tax benefits, and long-term savings, making them an ideal choice for individuals looking to secure their future and achieve their financial goals. By understanding the features, benefits, and claim process of endowment plans, individuals can make informed decisions and ensure a financially secure future for themselves and their families.

Related articles

Life insurance calculator

IRDAI full form

Compare term insurance

Frequently asked questions

What is an example of an endowment policy?
An example of an endowment policy is the ‘New Endowment Plan’ offered by Life Insurance Corporation of India (LIC). This plan provides both insurance coverage and savings benefits, offering a lump sum payout at maturity or in case of the insured's demise during the policy term.
Is LIC an endowment plan?
Yes, LIC offers various endowment plans, including the New Endowment Plan, Jeevan Rakshak, and Jeevan Anand. These plans combine insurance protection with investment opportunities, catering to individuals' diverse financial needs.
Which is the most suitable insurance company for investing in endowment plans?

The most suitable insurance company for investing in endowment plans depends on individual preferences, financial goals, and risk tolerance. You can visit the official websites of your preferred insurance company and check their offerings. You can also visit websites that allow comparing and buying insurance plans.

Is getting an endowment plan beneficial?

Yes, obtaining an endowment plan can be beneficial for individuals seeking a combination of insurance coverage and savings growth. Endowment policies provide financial security to the insured's family in case of untimely death while also building a corpus for future needs like education, retirement, or buying a home. Additionally, the maturity proceeds and accrued bonuses offer a lump sum amount, aiding in fulfilling long-term financial objectives. However, it's essential to assess one's financial goals and risk tolerance before investing in an endowment plan.

What is a 10-year endowment policy?

A 10-year endowment policy is a life insurance plan that combines savings and protection, maturing after 10 years. It offers a lump sum payout upon maturity or death during the policy term.

Does LIC offer endowment plans?

LIC offers various endowment plans that provide savings and life cover. These plans combine financial protection with a savings component, ensuring a lump sum payout at maturity or in case of the policyholder's death.

What is a 5-year endowment plan?

A 5-year endowment plan is a short-term life insurance policy that combines savings with insurance coverage. It offers a lump sum payout after five years, either upon maturity or in the event of the policyholder's death, providing financial security and disciplined savings over a brief period.

What are the drawbacks of an endowment policy?

Endowment plans often have higher premiums compared to term insurance. Additionally, returns may be lower than market-linked investments, making them less suitable for those seeking high-growth potential in shorter timeframes.

Are endowment plans safe investments?

Endowment plans are relatively low-risk as they focus on guaranteed returns and life coverage. However, the safety depends on the insurer’s credibility, and they may not suit investors with a higher appetite for market-linked risks.

How long is the maturity tenure of an endowment policy?

The maturity period of an endowment policy typically ranges from 10 to 30 years, depending on the plan. It is designed to cater to long-term financial goals like retirement, education, or wealth creation.

Show More Show Less

Bajaj Finserv app for all your financial needs and goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-qualified limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

UPI, Wallet, Loans, Investments, Cards, Shopping and more

GET THE APP

Disclaimer

*T&C Apply - Bajaj Finance Limited (‘BFL’) is a registered corporate agent of third party insurance products of Bajaj Allianz Life Insurance Company Limited, HDFC Life Insurance Company Limited, Future Generali Life Insurance Company Limited, Bajaj Allianz General Insurance Company Limited, SBI General Insurance Company Limited, ACKO General Insurance Limited, ICICI Lombard General Insurance Company Limited, HDFC ERGO General Insurance Company Limited, Tata AIG General Insurance Company Limited, The New India Assurance Company Limited, Cholamandalam MS General Insurance Company Limited, Niva Bupa Health Insurance Company Limited , Aditya Birla Health Insurance Company Limited, Manipal Cigna Health Insurance Company Limited and Care Health Insurance Company Limited under the IRDAI composite CA registration number CA0101. Please note that, BFL does not underwrite the risk or act as an insurer. Your purchase of an insurance product is purely on a voluntary basis after your exercise of an independent due diligence on the suitability, viability of any insurance product. Any decision to purchase insurance product is solely at your own risk and responsibility and BFL shall not be liable for any loss or damage that any person may suffer, whether directly or indirectly. Please refer insurer's website for Policy Wordings. For more details on risk factors, terms and conditions and exclusions please read the product sales brochure carefully before concluding a sale. Tax benefits applicable if any, will be as per the prevailing tax laws. Tax laws are subject to change. Tax laws are subject to change. BFL does NOT provide Tax/Investment advisory services. Please consult your advisors before proceeding to purchase an insurance product. Visitors are hereby informed that their information submitted on the website may also be shared with insurers. BFL is also a distributor of other third-party products from Assistance Services providers such as CPP Assistance Services Pvt. Ltd., Bajaj Finserv Health Ltd. etc. All product information such as premium, benefits, exclusions, sum insured, value added services, etc. are authentic and solely based on the information received from the respective insurance company or the respective Assistance service provider company.

Note – While we have made all efforts and taken utmost care in gathering precise information about the products, features, benefits, etc. However, BFL cannot be held liable for any direct or indirect damage/loss. We request our customers to conduct their research about these products and refer to the respective product’s sales brochures before concluding their sale.