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Know Endowment Life Plans Research Team | Posted On Monday, November 10,2014, 01:02 PM

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Know Endowment Life Plans



If you have a family that depends on your income and you truly care for them a life insurance policy is a must. Your mind is at peace. You have done all you can for your family. Life does not give you many second chances and certain things need to be done at the right time. Buy an endowment life insurance policy and your family will remember you in this life and the next.

Because they’re worth it

What is an endowment life policy?

An endowment life policy gives you twin benefits

Insurance + Investment

You have to pay a premium to take up an endowment life policy. Your life is insured for a sum of money (sum assured) depending on the premium you pay. The endowment life policy has a maturity period. You can opt for a maturity period of 10, 20 or even 30 years .

In case you (policy holder) survive the term of the policy you get survival benefits (maturity benefits).An endowment life policy invests your money in fixed income securities (debt) and also in bonds so that you get fixed returns.

What happens if you survive till the maturity of the endowment life policy?

If you (policy holder) die soon after taking the policy your family gets only the sum assured amounts and no bonuses. If you survive till maturity you get a maturity benefit (sum assured + all bonuses)

This policy pays a higher amount if you (policy holder) survive the term of the policy as you get all the bonuses which only accumulate with time. If an endowment life policy pays you a bonus it is called a with-profit or a participating endowment policy.

Guaranteed Bonus : The endowment life policy pays a guaranteed bonus (% of the sum assured) for the first 5 years of the policy.

Revisionary Bonus: This bonus is paid for the next 5 years of the policy after you get the guaranteed bonus. This bonus is paid out of the profits of the policy. (If there are profits).If there are no profits there is no revisionary bonus.

Terminal Bonus : This bonus is paid out in the final year of the endowment life policy. If you survive the term of the endowment life policy (maturity period) you get a sum assured + guaranteed bonus + revisionary bonus (if applicable) + terminal bonus.

What are riders in an endowment life policy?

You can buy an endowment life policy and pay separately for riders. You pay the premium for the endowment life policy and an additional amount for the rider. If you choose a double indemnity rider your nominee’s (family/heirs) get twice the original insured amount (sum assured) if you (policy holder) die in an accident.

An accidental death benefit rider gives your nominee’s (family/heirs) an (additional amount + policy amount) if you (policy holder) die in an accident.A critical illness rider gives you a lump sum of money when you (policy holder) suffer a critical illness such as cancer, heart attack or a stroke.

Remember : Choose a rider most suitable to your needs.

What happens on surrendering an endowment policy?

If you are dissatisfied with your endowment life policy you can surrender it. You can surrender your endowment life policy only after 2 years of holding the policy. This is possible only if the endowment life policy has a premium paying term (time you pay the premium) less than 10 years. You get 30% of the premiums you have paid in the first year and second year of the policy.

If the premium paying term of the endowment life policy is more than 10 years then you have to surrender the policy only after 3 years. You get 30% of the premiums you have paid in the first year, second year and the third year of the policy.

What is paid-up endowment policy?

If you have paid premiums for at least 3 years on your endowment life policy you have the option to convert your policy to a paid up endowment policy. If you are dissatisfied with your endowment life policy but do not want to surrender it you discontinue paying premiums on the policy.

Your policy continues till maturity but your sum assured is reduced.No bonus is given to you from the time you discontinue paying the premiums on the policy.

What are the tax benefits of an endowment life policy?

You get a deduction under Section 80C of the income tax act up to INR 1.5 Lakhs per year on your taxable salary for the premiums you pay for the endowment life policy. The maturity amount you get when the policy matures or the death benefit your family gets on you (policy holders) death are tax free under Section 10(10d) of the income tax act.

There is no greater weapon in this World than knowledge. You know your endowment life plan and what it can do for you. Put this knowledge to good use.

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