What is an Endowment Plan?
Endowment policy is a life insurance plan, which offers insurance and the savings benefit. The insurer pays the policy holder the sum assured + accrued bonus, at maturity of the plan. However, in case of sudden demise of the policy holder, the insurer pays the sum assured to the nominee.
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What are the Types of Endowment Plans?
There are various types of endowment plans. Listed below are the ones that you can choose from:
- Participating plans: in this type of plan, the policy holder becomes a participant in the profits of the insurer and receives a small portion of the profit as a bonus.
- Non-participating plans: In this type of plan, the policy holder does not get any share of insurers profits.
- Unit Linked Endowment Plan: the unit linked endowment plan not only provides insurance cover to the policy holder, but also offers investment benefit.
- Full /With Profit Endowment: A full endowment is a with-profits endowment, where the basic sum assured is equal to the death benefit at start of the policy and assuming growth, the final payout would be much higher than the sum assured.
Features of Endowment plan:
- Higher returns: an endowment policy helps save money over a period of time. This results in higher payout on maturity, than pure life insurance plan.
- Low risk: the endowment policy is safe vis-à-vis Ulips.
- Death and survival benefit: Death benefit is paid if policy holder dies within tenure to nominees. If policy holder survives till maturity, he gets maturity benefit.
- Frequency of premium payment: payment of the premium can be done monthly, quarterly, half yearly or on yearly basis.
- Tax benefits: the policy holder can avail tax benefit under Section 80C up to Rs 1.5 Lakhs a year.
Riders available under Endowment Plan:
Riders are added benefits that can be coupled with the basic endowment plan to enhance features and coverage. These are some optional riders that can be availed along with an endowment plan by paying an additional premium:
- Accidental death benefit: the insurer will pay additional amount as well as sum assured + accrued bonus, if policy holder dies in accident.
- Critical illness cover: in case the policy holder is diagnosed with critical illness, then he is entitled to get a lump sum amount under this rider.
- Disability cover: this rider is beneficial when the policy holder suffers from partial or permanent disability.
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Benefits of Endowment Plan:
- Provides insurance cover: an endowment plan provides insurance cover during the policy term.
- Lump sum payout: it provides a lump sum payout when the policy matures.
- Serves dual purpose: an endowment policy serves a dual purpose. It is insurance + investment.
- Offers long term savings: An endowment policy offers long-term savings. You can choose a policy term ranging from 10, 15, 20, 30, 40 years.
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How to Choose an Endowment Policy?
There is a plethora of endowment policies available in the market. However before buying an endowment policy, you must consider the following points:
- Income: you must have a steady source of income. As these are long term investment plans, you must have a stable job or steady cash flow to continue the premium payments.
- Current stage of life: You must consider current life stage and your financial goals, before purchasing an endowment plan.
- Individual/ family needs: before investing money in an endowment plan, consider the overall impact of the financial decision on your expenses and family.
- Cost of the premium: endowment plans have a higher premium that term insurance plans. The older you are, the higher the premiums. So, it is better to avail endowment plan, early in life.
- Claim settlement ratio of the insurer: Opt for a life insurer with claim settlement ratio above 90.
What are the documents required to apply for an endowment policy?
Listed below are the documents that the applicant must submit to apply for an endowment policy:
- Duly filled and signed application form.
- Age proof: school leaving certificate/ Aadhaar card/ voter ID card.
- Address proof: voter ID card, Aadhaar card, rental agreement, recent utility bills.
- Income proof: latest pay slip or certificate of employment.
- Passport size photograph
Best Endowment Policy in India:
Listed below are some of the best endowment plans in India, that provide best features and coverage and are the most reliable endowment plans:
- LIC New Endowment plan
- SBI Life Endowment Plan
- Reliance Life Insurance Super Endowment Plan
- Kotak Classic Endowment Plan
- Reliance Endowment Plan
- Bajaj Allianz Endowment Plan
- Kotak Premium Endowment Plan
- Aegon Life Premium Endowment Plan
- Aviva Dhan Nirman Endowment Plan
- IDBI Federal Endowment Plan
Endowment Plan FAQ's
Do I need supplemental life insurance?
Yes, you can avail supplemental life insurance cover along with base cover. The additional cover can be availed in the form of riders, to enhance your endowment plan. The rider is quite economical and can be availed by paying extra money along with your premium.
When can I withdraw life insurance plan with better returns?
A life insurance policy gives good returns only if you continue for a longer period as the policy’s cash value increases over time.
Can I purchase an endowment policy online?
Yes, an endowment policy can be availed online from the insurance company’s official website or on any insurance aggregator’s website.
Do I need a large set of documents to buy an endowment plan?
Buying an endowment policy requires minimum documentation and paperwork. It is a simple and hassle free process.
Can I buy an endowment plan for my child?
A child can be named as a nominee for the endowment policy. The guardian will receive a lump sum in case of death of the policy holder.