An endowment plan is a life insurance contract designed to pay a lump sum after a specific term (on its 'maturity') or on death. Typical maturities are ten, fifteen or twenty years up to a certain age limit. Endowment policy also pay out in the case of critical illness. Endowment policy are typically traditional with-profits or unit-linked including those with unitised with-profits funds the holder then receives the surrender value which is determined by the insurance company depending on how long the policy has been running and how much has been paid into it.
Endowment policy are a type of life insurance policy, which provides the combined benefit of insurance coverage and savings. Endowment plan helps the insured to save regularly over a particular time period in order to avail a lump-sum amount at the maturity of the policy. The maturity amount is paid in case the insured survives the entire tenure of the policy. However, in case of an unfortunate demise of the insured during the policy tenure, a sum assured amount as death benefit along with bonus (if any) is paid to the beneficiary of the policy. Besides this, endowment policy also helps to create financial cushion for future so that one can meet the long-term and short-term financial objectives of life.
This is a fixed-term saving plan which also provides the benefit of life coverage. Under this plan option the premium paid by the insured is bifurcated into different units held under a particular investment fund, as chosen by the insured person. The return on investment entirely depends on the market performance of the fund. This plan option is best suitable for individuals who have a high-risk appetite and who want to gain high return on investment.
Under this plan option, the basic sum assured amount equal to the death benefit is provided to the insured person. This amount is guaranteed from the starting of the policy. Moreover, the final payout paid to the insured is comparatively higher, as it includes total sum assured amount plus additional bonus (if any).
This type of endowment plans are specifically designed to help the insured to accumulate a fund for the future, which have to be paid after a particular time period. Generally, low-cost endowment plans are used for the repayment of mortgage, loans, etc. In case of demise of the insured during the policy term, the target amount is paid as minimum sum assured to the beneficiary of the policy.
In non-profit traditional endowment policy, a sum assured amount is paid to the policyholder as maturity benefit or to the beneficiary of the policy as a death benefit.
Endowment insurance policies guarantee that a sum of money will be given to you or your beneficiaries whether you live until the insurance policy matures or you die early. The face value of an endowment policy will be given to the policyholder on the "maturity date" or to the beneficiary of the life insurance policy in the event the insured dies. The bonuses under the policy are not guaranteed. Thus with endowment policy you get the dual advantage of guaranteed policy benefits and non guaranteed bonues.
Endowment policies give you the following benefits:
1. They are low risk plans to invest in since the maturity benefits are guaranteed.
2. The endowment policy gives your loved ones financial security.
3. Endowment policies help you avail tax benefits.
There are various types of bonuses declared by an insurance company. Bonus is an extra amount of money additional to the proceeds, which is distributed to a policyholder by an insurer. Only holders of with-profits policy are entitled to a share in these profits and the payment of this bonus is conditional on the life insurer having surplus funds after claims, costs, and expenses have been paid in particular year.
The bonuses are classified as.
Reversionary Bonus: Additional money added to the amount payable on death or maturity of with-profits policy. Once a reversionary bonus has been made it cannot be withdrawn if the policy runs to maturity or to the death of the insured.
Terminal Bonuses:A discretional additional amount of money added to payments made on the maturity of an insurance policy or on the death of an insured person.
One can purchase the following rider benefits with his/her endowment plan:
o Accidental Death Rider: Opting for this rider gives policyholder an additional benefit of accidental death with a death benefit. In other words, the nominee gets
accidental death benefit in case of accidental death of the policyholder along with the death benefit.
o Critical Illness Cover: This rider works as a boon when the policyholder is diagnosed with a critical illness such as heart attack, cancer, kidney failure, etc. Taking
this rider provides a lump sum amount to the policyholder on detection of any such critical illnesses.
o Disability: This rider is proved as one of the most useful riders as it provides financial help to the policyholder in case of permanent or partial disability.
o Hospital Cash Benefit: Under this rider, the policyholder gets a daily allowance in case of hospitalization. With cash benefit, this rider also covers post-
hospitalization expenses.
o Waiver of Premium: With this rider, the policyholder is not liable to pay any premium for his/her endowment plan if he/she suffers from permanent disability or
critical illness.
Pon surviving the term of the policy or upon the end of the policy or maturity, the insured receives sum assured plus bonus for the term of the policy. The amount receivable upon maturity is tax-free. This is the maturity benefit under an endowment policy.
Salient Features of endowment policy are:
The nominee/beneficiary gets the sum assured along with bonuses, in case of the demise of the insured before the maturity of
policy. And, the insured is entitled to get the sum assured if s/he outlives the policy.
An endowment plan not only provides financial protection to the family and dependents of the policyholder in case of the unforeseen demise of the
insured but also helps build a corpus for the future. Whether it is the survival benefit or death benefit, the payout of an endowment plan can be much higher than that
of a pure life insurance policy.
The policyholder can make regular, single or limited payments of the premium based on the policy chosen by him/her. One can also
choose to pay in frequencies on the yearly, half-yearly, quarterly, or monthly basis.
Policyholders can add riders, such as critical illness, total disability, and accidental death, to the plan and increase their life cover. A few plans also give offer premium payment waiver in case of permanent disability or critical illness.
The policyholder gets tax exemption on both the premium payments and maturity or final death payouts, under Section 80C and Section 10(10D), respec
tively.
Endowment policies are safer as compared to other investments plans like mutual funds or ULIPs, as the amount is not invested directly in equity funds or the stock market.