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Endowment Plan

What is an Endowment Plan?

An Endowment Plan is a mix of both insurance and investment. It is a life insurance policy that provides the life cover to the insured by charging mortality cost and provide a return on investment through investing the remainder portion of the premium.The policy offers both death and maturity benefits (whichever happens earlier).Endowment policy helps you to accumulate adequate corpus along with providing financial protection in case of any unfortunate event to accomplish the financial goals in your life like child's education, marriage, post-retirement expenses, etc.

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Why should I Buy an Endowment Plan?

Following are some of the top reasons to buy an Endowment Plan.

Ensure Financial Protection for your Loved Ones

Ensuring financial protection is quite essential in today's uncertain times. An endowment plan provides the death benefit to the assigned nominee/beneficiary in the event of the death of the insured. It helps the nominee or family to confront immediate financial loss, whereas an emotional loss will take the time to recuperate

To Meet Financial Objectives

Endowment policies help you to achieve the financial objectives or goals at different life stages.Proceeds received from the maturity benefits in the event you survive the policy term can be utilized in meeting such objectives.

For Accumulation of Funds

By investing in an endowment plan, you are entitled to receive the lump sum amount at the maturity that you can utilize for meeting the financial goals of your life with ease.

Goal Based Savings

By investing in an endowment plan, you can accumulate huge corpus at the maturity of the policy and can easily achieve your financial goals as well.

Assured Peace of Mind

Everyone wants to lead a worry-free life. An endowment plan offers both the insurance and investment protection. Get the assured peace of mind. This plan offers life cover to the nominee in case of the demise of the insured, and the policyholder can get the maturity amount in case you survives till the end of the policy period.

What kind of Endowment Plans can I opt from?

Typically, there are two types of endowment plans.

Traditional Endowment Plan

Traditional endowment plans are those plans that offer insurance plus investment under a single policy. Such plans are a long term life insurance contract where the policyholder has to pay premium throughout the tenure of the policy or may opt for single pay or limited payment option. The benefits under the policy are either paid out on the death of the life insured or at maturity, if the life insured survives the term of the policy. The death benefit paid under the plan is the sum assured plus the accrued bonus (if it is a with profit endowment policy) or only sum assured (if it is a non profit endowment policy) where as maturity benefits are sum assured plus accumulated bonus or guaranteed additions by the insurer.

Here the investment portion of the policy is taken care by the insurance company. The bifurcation of cost and benefits are not transparent in nature

Market Linked Endowment Plan

Unit Linked Insurance plans (ULIPs) are also categorized as endowment plans as it offers the dual benefit of insurance and investment collectively under one policy. Such plans also offer death and maturity benefits (whichever occurs earlier). Part of the premium is taken away to provide insurance by deducting mortality charges, and part of it is kept aside for investment, which is decided by the policyholder as per his/her risk appetite and is based on market performance.

A fund is created which attracts returns as per the investment made in either equity or debt instrument which is paid as fund value to the policyholder at the time of maturity. If the policyholder dies during the tenure of the plan, Sum assured or higher of Sum Assured or Fund Value is paid to the nominees and the policy ceases after that.

ULIP's are transparent and flexible in nature, and the investment steering is in the hands of the policyholder and not the insurance company.

What are the Benefits of Buying an Endowment Plan?

Following are the key benefits of an Endowment plan.

Insurance Benefit

An endowment plan offers the insurance benefit by providing the life cover or sum assured to the nominee in the event of the death of the life insured during the policy term. It ensures financial protection for your dependents in case of such unfortunate event.

Maturity Benefit

By investing in an endowment plan, you can get the lump sum amount plus accumulated bonus or the fund value at the maturity of the policy, provided you have paid all the due premiums. The maturity amount also helps you gain financial security and a huge corpus to take care of the planned financial objectives or fore post retirement life.

Guaranteed Benefits

Policyholders of ‘With Profit’ Traditional Endowment Policies are entitled to receive a portion of the profits/dividends as declared by the insurance company in the form of a bonus or guaranteed. The bonus amount may differ depending on the company’s investment & return assumptions and bonus distribution policy. For Ulip’s, there are no guaranteed benefits as the returns are based on market performance or fund performance. However, few insurer’s might add Loyalty Units to the fund in the last few years before maturity.

Rider Benefit

With an endowment plan, you can avail the option to attach riders or add on covers to enhance the protection under your policy. You can choose from various available riders such as Accidental Death Benefit, Critical Illness rider, Family Income Benefit, Waiver of Premium, etc. by paying additional rider premium amount.

Surrender Benefit

In times of liquidity crunch, the endowment policies may be surrendered as per the terms of the policy, after the lock in period of 3 to 5 years. The surrender value is however given after applying certain surrender charges which vary from insurer to insurer.

Loan Benefit

Endowment policies offer the option to avail the loan against the policy. To obtain a loan, you need to fulfill some conditions such as payment of premiums for a minimum of 3 year policy period. The loan facility under the plan helps you to fulfill the financial needs of your family and quench the immediate cash requirement.

Tax Benefit

You can get the tax benefits under Section 80 C for the premium paid for an endowment plan. The proceeds of the policy are tax free as mentioned under section 10 (10) D of the Income Tax Act, 1961.The laws are subject to change.

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What are the Types of Bonus Payouts in an Endowment Plan?

There are two types of bonus payouts available under an endowment plan.

Reversionary Bonus

A bonus payout which is declared on an annual basis by the insurer and it depends on the performance of the insurer. This payout is added to the funds and payable at the maturity or death of the life insured.

Terminal Bonus

A type of loyalty bonus that reflects the performance of a ‘With Profit’ endowment policy and is paid at the maturity or the death of the life insured.

How is my Endowment Plan Premium Calculated?

Following are the factors that help calculate the premium amount for an endowment policy.

Age

Age plays a key role when it comes to calculating the premium amount. The age factor determines the premium amount charged towards the life cover in the endowment plan. If you buy the plan at an early age, you will be charged with the lower premium amount when compared to the one when buying the plan at a later age.

Smoking/Drinking Habit

Consumption of alcohol, tobacco, and other nicotine products also affect the premium charged in the endowment plan. Intake of these products is injurious to health, and it increases the life risk of insured and thus, insurers charge higher premiums to cover the risk.

Present Health Condition

Your health status also determines the amount of premium to be paid by you. In case you possess severe illnesses such as diabetes, cancer, or high blood pressure, you will be charged with a higher amount of premium.

Gender

As per statistics, men have lower life expectancy than women and taking into consideration the life risk for men, insurers tend to charge them with the higher premiums for providing the life cover as compared to women.

Nature of Profession

If you are working in a risky industry such as working in Oil & gas, mining industry, fisheries, etc., and your nature of work involves risk to your life you will be charged with the higher premiums.

What are Some Smart Buyings Tips?

Following are some key tips you may refer before buying an Endowment Life Plan.

Assess your Financial Goals

Before investing in an endowment plan, it becomes quite essential to assess your financial goals to be met at different stages of your life. It helps you make a right move to identify an amount you need to invest so you can easily get a huge corpus at the maturity of the policy. The higher the premium you pay towards the investment component of the plan, more will be the returns.

Assess Life Cover

An endowment plan also provides the life cover in terms of the sum assured to ensure financial protection for your family in the event of your demise. It is one of the most important aspects when seeking the family’s happiness. Firstly, you need to consider the financial obligations such as children’s education, marriage, or debts and then choose a coverage amount that can ensure that your family is not overburdened to pay the financial liabilities in your absence.

Invest Early

It is recommended to buy an endowment plan early in your life. The reason being if you buy an endowment plan early in your life say at an age of 25 years, you can build a huge corpus that you will receive at the maturity of the policy. Moreover, investing in the plan in the younger age enables you to get the life cover at the lowest cost.

Assess Plans Online

Don’t be in a hurry or get influenced by your agent. Before buying an endowment plan, it would be a wise decision to compare the plans from different insurers and choose the one that suits your needs. Buying the plan online would be a right move, as insurers usually offer premium discounts on online buying.

Choose Add-on Covers

Add-ons enhance protection to your basic endowment plan, and all these are available at an additional cost. It is thus advisable to assess the benefits available with the add-ons and choose the one that suits your needs and budget.

Check your Insurance Company’s Record

It is imperative to check on the crucial details of your insurance company like is it IRDAI approved, about the claim settlement ratio, about the financial stability, about the bonus rate offered on the endowment policies, investment expertise of the insurer, customer services, etc. Life insurance is a long-term contract it is better to be safe than sorry!

Read the Expert Reviews

Before you finalize any decision to buy a plan, don’t forget to read the expert reviews on the same. There are several expert reviews from the industry which could help you know how useful would be to buy a particular endowment plan. You can also consult with your friends, colleagues, and family members about the plan.

Magnify the Fine Print

Knowing all about the policy terms & conditions, its benefits & exclusions are quite imperative, so read through the policy wordings to get the clarity about the policy and then go ahead to buy the policy.

Is there any Add-on Cover/Rider with Endowment Plan?

Following are the rider options to attach to your Endowment life insurance policy:

Accidental Death Benefit Rider

This rider ensures additional financial benefits to the nominee in case of death of the insured arising from an accident. The insurer pays the accidental death sum assured to the nominee, which is over & above the base sum assured of the policy.

Term Rider

This rider provides an additional death benefit to the nominee, which is additional to the base policy sum assured in the event of the death of the life insured.

Critical Illness Rider

This optional rider covers the medical costs incurred due to severe illnesses such as a Heart Attack, Cancer, and Major organ transplant, which may disable an individual that result in loss of earnings. Typically, the covered provided under this rider is the sum assured and paid additional to the sum assured in the base policy. The benefit under this rider is paid upon diagnosis of the illness.

Waiver of Premium Rider

This rider waives off all the future premiums in the event of death or disability of the life insured. The policy continues till its maturity. It enables the policyholder to enjoy benefits of the insurance policy, even when he/she cannot pay premiums.

Income Benefit Rider

By choosing this rider, the assigned nominee/family of the life insured is provided with the monthly income apart from the lump sum payout they get upon the death of the insured. The payout and other benefits are subject to the terms mentioned under the rider benefits.

Disability Rider

This rider provides monthly income to the life insured in case of permanent or temporary total or partial disability arising due to an accident or illness. The payout differs and it depends on the kind of disability occurred.

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What is Not included in my Endowment Plan?

Your endowment life insurance plan has the following exclusions.

Suicide clause

It states that if the life insured commits suicide within the first year of the commencement of the policy, the insurance company is not bound to pay the policy proceeds.

Aviation Clause

This clause states that if the life insured dies while traveling in a private plane as a passenger, the insurance company is not liable to entertain the claim. The benefits of the policy are paid only when the life insured dies while traveling in a commercial plane crash.

Dangerous Adventure Sports

It states that if the life insured dies due to the involvement in dangerous adventure activities such as river rafting, para-gliding, skiing, rock climbing, etc., the insurance company is not liable to pay the policy benefits.

Act of war exclusion

This exclusion states that the insurer is not liable to pay if the life insured dies as a result of the war.