What is Endowment Plan?

What is Endowment Plan?

An endowment plan is a life insurance policy. It offers both insurance benefits and savings opportunities to the buyer. This plan is the type of insurance policy which offers a lump sum amount to the insured after the maturity period or death of the policyholder.

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Endowment Plan

An endowment plan is a type of life insurance policy that combines life coverage with savings. Under this policy, a buyer may choose a nominee. This nominee receives the sum assured after his death. This is known as the death benefit. The buyer can receive the maturity amount if he survives till the end of the policy. This maturity amount includes the sum assured and bonuses. This plan provides the saving opportunity with financial security to the buyers and their families. The life insurance companies in India offer this plan. A person can buy this plan for a specific period or whole life.

Types of Endowment Plan in India

A buyer must understand the type of endowment plans available in India in order to choose the best one. Let us discuss some common life insurance policies. 

With-Profit Plan

This policy offers bonuses or profit to the buyer on the premium he pays to the insurance company. The bonus is the percentage of the sum assured. The insurance company declares the bonuses on an annual basis. In addition, this bonus is added to the policy. It is paid to the consumer with a sum assured upon maturity. 

Unit-Linked Policies

A unit-linked policy is one of the best plans for investment purposes. The  policyholder may increase their savings by choosing different kinds of capitals. This includes equity, debts, and balanced funds. The policy buyer chooses the types of funds based on his risk size. For example, he may choose equity funds if he can take more risks. He can also choose a debt fund if he is not willing to take more risk and returns. The returns depend on the performance of the share.

Non-Participating Plan

Non-participating plan is different from with-profit policies. It does not offer any profit on the premium that a buyer pays. It only offers the sum assured along with the interest accrued. The buyer may receive this upon the maturity of the plan. 

Limited Premium Payment Plan

The buyer needs to pay the premium for a specific period. It could vary from 5 years to 15 years. However, the policy shall remain in force for a long period. This could vary from 20 to 25 years. 

Money-Back Plan

The money-back scheme provides consumers with recurring payouts. Under this scheme, the buyer receives a percentage of the cash promised at regular periods. This can range between 3 and 5 years. The remaining money, along with the incentive, will be paid when the plan matures.

How Does Endowment Policies Work?

Let us discuss how the plan works.

Choosing the Policy

The buyer selects the policy based on his requirement and preferences. The consumer decides the sum assured he needs. He picks the suitable policy term as well as the payment term of the premium. In addition, the consumer also selects the type of plan he wishes to purchase. 

Payment of Premium

The buyer pays the premium to the insurance company on a regular basis. In addition, the buyer may also pay the premium as a lump sum according to the terms of the policy. 

Bonuses

The insurance company declares the bonus on an annual basis. The bonuses or profits are added to the sum assured. This is paid to the consumer on maturity. 

Maturity Benefits

When the policy expires, the consumer receives the cash insured. This also includes bonuses. The cash can be used for schooling, retirement preparation, or other financial purposes.

Death Benefit

If the consumer dies, the insurance company pays the death benefit to the relative of the consumer. This is to help the family of the consumer to meet the financial requirement.

Conclusion

A life insurance policy is an endowment plan. It is purchased by the consumer in order to pay financial obligations. It provides the consumer with maturity benefits as well as a bonus. If the consumer dies while the policy is in effect, the nominee will get the death benefit. Endowment plans are available from several insurance firms. This includes an option of with-profit plan, a unit-linked policy, a non-participating plan, a money-back plan, and a policy with a limitedpremium payment period. The consumer must understand the importance of the stated plans and make informed decisions.

FAQs

Q. What are the benefits of an endowment plan?

A. Here are the benefits of an endowment plan.

  • The plan offers insurance coverage to the consumer.
  • It offers guaranteed returns upon the maturity of the policy.
  • The maturity amount received by the consumer or nominee shall be tax-free.
  • The plan offers a loan facility and encourages the consumer toward discipline savings.
Q. How should a consumer choose the best endowment policy in India?

A. Here are the steps to choose the best endowment policy in India.

  • The consumer must assess the financial goals.
  • He should compare the types of policies offered by the insurance company.
  • He should also check the bonus structure of the different companies.
  • The consumer must check the CSR (Claim Settlement Ration) of different life insurance companies.
Q. What is the limitation of the endowment plan?

A. Here is the limitation of this plan.

  • It offers a low rate of returns.
  • There is a longer lock-in period which does not allow the consumer to withdraw the amount.
  • The premium could be higher on the basis of the sum assured.
Q. How does an endowment plan work?

A. The insurance buyer chooses the policy and pays the premium based on the sum assured and the term of the plan. The insurance company declares a bonus every year which shall be repaid to the consumer upon the maturity period. The maturity benefits shall be given to the consumer. However, if the consumer dies, the nominee shall be qualified to receive the death benefit.

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