What is Endowment Life Insurance Policy: All you Need to Know About It

What is Endowment Life Insurance Policy

The endowment policy is a variant of a life insurance product that not only provides insurance coverage to the family of the insured but also works as a savings plan to create a financial cushion for the family in the long term. As a remunerative option of investment, the endowment insurance plan helps to accumulate wealth in the long term, so that one can achieve the financial objectives of life.

Further in this article, we have discussed in detail what is the endowment insurance policy and why you should consider having it.

What is an Endowment Life Insurance Policy?

Endowment plans are life insurance policies that ensure a guaranteed sum assured amount to the policyholder along with other benefits on the maturity of the policy tenure. Moreover, the plan also offers a death benefit to the beneficiary of the policy in case of the unfortunate demise of the life assured during the tenure of the policy.

How Does Endowment Plan Work?

There are two options offered in an endowment plan that is, with profit and without profit. In a profit endowment insurance policy, the basic sum assured amount along with the guaranteed additional bonus is offered to the policyholder. This amount is guaranteed right from the initiation of the policy. However, the final payout as maturity benefit provided is comparatively higher depending on the bonuses announced from time to time by the insurance company.

On the other hand, without a profit endowment insurance plan, there are no additional bonuses offered by the insurance company. The plan only offers maturity benefits and death benefits to the policyholder.

The main feature of an endowment policy is that it works as a savings plan for an individual and offers a lump-sum payout along with the guaranteed additional bonus as a maturity benefit to the policyholder after the completion of the policy tenure.

Benefits of Endowment Insurance Plan

The endowment policy not only offers the advantage of insurance coverage plus savings under the same plan but there are several other benefits offered by the policy. let’s take a look at these benefits in detail:

Disciplined Savings

In an endowment plan, a part of the premium paid by the insured is kept aside by the insurer as savings, which are accumulated at the end of the policy tenure. This helps the policyholder to inculcate a habit of a disciplined approach towards savings.

Assured Bonus

Annual bonuses are declared under the endowment plans, these are typically paid out as a specific percentage of a sum assured to the policyholder. In case the life assured survives the entire tenure of the policy, then a total sum assured amount as maturity benefit along with a guaranteed additional bonus is paid to the life assured at the end of the policy tenure. Similarly, in case of the demise of the policyholder, the total sum assured amount is paid to the nominee of the policy as a death benefit along with the guaranteed additional bonus.

Compounding Returns

One of the major advantages offered by the endowment policy is that it offers compounding returns during the policy tenure.

Loan Facility

The policyholder can avail loan against an endowment policy after completion of the certain policy tenure.

Tax Benefit

The insurance holder can save on taxes on the premium paid towards the policy and the maturity proceeds under Section 80C and 10(10D) of the Income Tax Act.

Premium Flexibility

The insurance holder has the flexibility to pay the premium of the policy in monthly, quarterly, yearly, or half-yearly mode. Moreover, they can also choose the option of single premium payment, regular premium payment, or limited premium payment as per their requirement and suitability.

Additional Rider Benefit

Along with the basic benefits offered by the policy, the plan also offers the option of riders. The policyholder can buy any of the rider options available under the policy to enhance the coverage of the policy.

Who Should Buy an Endowment Insurance Policy?

Everyone wants to have a risk-free, guaranteed return investment as a part of their financial portfolio. Thus, an endowment plan must be bought by individuals who want to:

  • Secure the financial future of their family and dependents
  • Create a financial cushion to fulfill the long-term investment objectives
  • Ensure goal-based savings

However, such regular premium plans must be purchased only when an individual is looking forward to a steady flow of income in return for the regular premium paid. As endowment policies are long-term in nature, the longer one invests in these plans the more savings one can accumulate in the long term. Endowment policies offer a disciplined means of saving money for future needs. Moreover, it also covers life risks and takes care of the future financial needs of the family even in the absence of the breadwinner of the family.

The Bottom Point!

If you are looking for a risk-free investment that also offers the benefit of life coverage then an endowment policy is one of the best options you can go for. However, make sure to go through the details of the policy before making an informed choice.

FAQs
What is a with-profit endowment policy?
In a with-profit endowment insurance policy, the basic sum assured amount along with the guaranteed additional bonus is offered to the policyholder. This amount is guaranteed right from the initiation of the policy.
What is a Without Profit Endowment Insurance Plan?
Without Profit Endowment Insurance Plan, there are no additional bonuses offered by the insurance company. The plan only offers maturity benefits and death benefits to the policyholder.
What are the tax benefits offered by an endowment plan?
As endowment policies are a life insurance product, the premium paid towards the policy and the maturity proceeds are tax exempted under sections 80C and 10(10D) of the Income Tax Act.
Does the endowment plan offer any loan facility under the policy?
The policyholder can avail loan against an endowment policy after completion of the certain policy tenure.
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