Endowment Policies

A traditional insurance plan pays out a lump sum assured in the event of the death of the policyholder. The beneficiaries/dependents/nominees of the life insured receive a benefit (called a death benefit) if the worst should come to pass for the insurance holder. An endowment plan works the same way, but has an additional clause that states that a lump sum payment will be made to the insurance holder if he or she survives till the end of a specified period known as the “Maturity period”, “endowment policy term” or “Survival term”. There are variations to the payout clause in endowment policies some companies have a lump sum payout on the detection of a critical illness, or other life changing events.

Types:

• Full/With Profit Endowment Under this plan, the basic amount i.e. sum assured will be provided to the policy holder. This amount is guaranteed right from the start of the policy. However, the final payout provided is comparatively higher depending on the bonuses announced from time to time by the company. The bonuses once declared form a part of the policy are paid out in the event of death of the policyholder or maturity of the policy.
• Unit Linked Endowment Plan Under Unit Linked policies, the insurance premiums are bifurcated into multiple units held under a specific investment fund which can be chosen by the policyholders.
• Low-Cost Endowment This type of endowment plan was designed with an intention of allowing the policyholder to accumulate the funds which have to be paid after a specified time period, usually mortgage.
• Non-profit Endowment These are endowment plans which do not participate in the profits generated by the company (bonuses). However, in order to make them competitive against other products, companies offer guaranteed additions in these plans which help in generating returns for the policy holder.

Benefits of Endowment Policies:

• An endowment policy will pay out a sizeable lump sum amount at the end of the policy term i.e. once the policy has matured.
• An endowment policy will provide insurance cover during the policy term.
• An endowment policy works to serve a dual purpose. Not only does it work as an insurance policy but also serves as a long-term investment offering decent returns.
• In terms of investing, endowment policies are relatively safer than other types of investments and offer returns which are close to those offered by mutual funds.
• Endowment policies come with tax benefits.
• Endowment policies enable long-term savings.
• With an endowment policy, you can be assured of receiving a considerable amount upon maturity.
• Policy holders have the options of opting for additional riders which provide cover for specific illnesses, critical illnesses, disabilities, etc.
• Most will extend insurance coverage and the promise of benefits even after the maturity date, in some cases up to a time when the life insured attains the age of 100.