What is an endowment plan?
While it is common knowledge that life insurance plans cover the risk of dying too early, did you know, that they can help you save too?
Life insurance plans come in different forms. While the term insurance policy provides unmatched protection against the risk of death, other life insurance plans are savings oriented which help you create a corpus for your financial goals. One such type of savings oriented life insurance policy is an endowment policy.
Let’s explore the basic tenets of the plan –
What is an endowment plan?
An endowment policy is a life insurance policy which covers the risk of premature death during the policy tenure. However, if the insured survives the policy tenure, a maturity benefit is paid to the policyholder.
For example, say you buy an endowment policy for a sum assured of Rs.10 lakhs and a term of 20 years. During the coverage duration of 20 years, in the case of death, a death benefit would be paid. However, if the tenure of 20 years expires and the insured is alive, the endowment plan would mature. On maturity, a maturity benefit would be paid.
An endowment life insurance plan provides both life coverage and savings, ensuring financial security for policyholders and their families. Here’s how it works:
- Premium Payment
- The policyholder pays regular premiums throughout the policy term, which are allocated toward life insurance and savings.
- The policyholder pays regular premiums throughout the policy term, which are allocated toward life insurance and savings.
- Life Cover Protection
- In case of the policyholder’s death during the policy term, the nominee receives the sum assured along with any applicable bonuses.
- In case of the policyholder’s death during the policy term, the nominee receives the sum assured along with any applicable bonuses.
- Maturity Benefit
- If the policyholder survives the term, they receive a lump sum payout, including the sum assured and bonuses.
- If the policyholder survives the term, they receive a lump sum payout, including the sum assured and bonuses.
- Bonuses & Additions
- Some plans offer additional bonuses, such as reversionary or terminal bonuses, enhancing the payout amount.
- Some plans offer additional bonuses, such as reversionary or terminal bonuses, enhancing the payout amount.
- Tax Benefits
- Premiums qualify for deductions under Section 80C, and maturity proceeds are tax-free under Section 10(10D).
- Premiums qualify for deductions under Section 80C, and maturity proceeds are tax-free under Section 10(10D).
An endowment life insurance plan is ideal for those seeking long-term financial security with guaranteed savings.
Endowment plans offer a blend of life insurance and savings, catering to different financial needs. Here are the common types of
Full-Endowment Plan
The sum assured is decided at the start, but the final payout may increase due to bonuses.
Low-Cost Endowment Plan
Designed for goal-based savings, it helps accumulate funds for future expenses like loan repayments.
Unit-Linked Endowment Plan
A market-linked plan where the premium is invested in equity and debt funds, offering higher return potential.
Non-Profit Endowment Plan
Provides a guaranteed sum without any additional bonuses.
With-Profit Endowment Plan
Offers a combination of guaranteed returns and bonuses based on the insurer’s profits.
Choosing the right
Some of the salient aspects of endowment insurance plans are as follows –
Traditional and guaranteed plans
You would find the words ‘traditional’ and ‘guaranteed’ associated with endowment plans. Let’s understand why –
Endowment plans are called traditional plans because they do not invest your premium in market-linked instruments like ULIPs do.
The word ‘guaranteed’ is often used in the context of an endowment plan because your investment is not exposed to market volatility. The maturity or the death benefit is guaranteed even when the markets are volatile.
The added benefit of bonus and other additions
Endowment plans can be issued as participating or non-participating policies. Participating policies are those that participate in bonus declarations while non-participating plans do not. The rate of bonus depends on the profits earned by the insurer. The bonus gets accumulated every year if you pay the premium without fail. The accumulated bonus is, then, paid either with the death benefit or with the maturity benefit.
Besides bonus, many endowment plans also offer different types of additions like guaranteed additions, loyalty additions, boosters, etc. under both participating and non-participating variants. These additions further enhance the corpus and help you earn better returns.
Possibility of whole life protection
Nowadays, endowment plans have evolved to provide protection up to 99 or 100 years of age. Such plans are called whole life plans, and they ensure lifelong protection. You pay premiums up to a limited period and the plan continues to run till you reach 99 or 100 years of age.
Lump sum pay-out on death or maturity
Usually, endowment life insurance plans pay a lump sum benefit on early death or after the plan matures. The benefit comprises of the sum assured and any bonus or other additions offered by the plan. However, some endowment plans might give you the flexibility of availing the maturity or death benefit in instalments or partly in lump sum and partly in instalments.
Optional riders
Lastly, almost all endowment plans come with optional riders that help in enhancing the coverage of the policy. You can choose from the list of available riders and customize your coverage as per your needs.
An endowment plan can be a good addition to your portfolio for the following reasons
Guaranteed Death Benefit along with Maturity Benefit
First and foremost, an endowment plan becomes a popular choice because of the returns that it promises. The sum assured is the minimum guaranteed benefit that you receive from the policy. Moreover So, if you want returns and avoid volatility risks, endowment plans can prove to be an ideal bet.
Wealth creation for financial goals
Endowment plans are long-term plans which help you create a corpus for your long-term financial goals. You can save in a disciplined manner during the policy tenure and create a corpus for your child’s higher education, for buying a home, for your child’s marriage, or for any other need. The bonus and other additions also enhance the corpus so that you can fulfil your financial goals optimally.
Insurance protection
Let’s not forget the insurance cover that an endowment plan provides. In the case of premature death, the endowment policy comes to the rescue of your family and provides them with financial assistance. You can, thus, secure your family’s finances with the help of an endowment plan.
Tax benefits
Provides life cover while helping you accumulate wealth for future financial goalEndowment life insurance plans are tax-saving avenues which let you save tax on the premium payment. The premium is allowed as an eligible deduction under Section 80C up to Rs.1.5 lakhs. Moreover, the bonus and other additions as well as the maturity benefit earned are completely tax-free in your hands. So, with endowment plans, you can create a tax-efficient corpus and enjoy tax benefits on investments too.
With the range of endowment plans available in the market, you can choose a comprehensive cover too. Aviva also offers a variety of endowment insurance policies which can help you create an attractive financial corpus. Understand what an endowment plan and its benefits is so that you can choose a suitable policy for your financial needs as well.
Also Read- Strengthen family bonds with the protection of Endowment Insurance
An endowment assurance policy offers a combination of life insurance and savings, making it a reliable financial tool. Here’s why you should consider investing in one:
- Dual Benefit of Insurance and Savings
- Guaranteed Maturity Payout
Ensures a lump sum payout at maturity if the policyholder survives the term.
- Financial Security for Loved Ones
If the policyholder dies, the family receives a death benefit, ensuring financial stability.
Premiums qualify for deductions under Section 80C, and maturity proceeds are tax-free under Section 10(10D).
- Disciplined Long-Term Savings
Encourages regular savings through fixed premium payments.
- Low-Risk Investment
Suitable for risk k-averse individuals seeking stable and guaranteed returns.
An endowment assurance policy is ideal for those looking for a secure, long-term financial plan with insurance protection.
To purchase an
Identity Proof
Aadhaar Card, PAN Card, Passport, Voter ID, or Driving License.
Address Proof
Utility bills, Aadhaar Card, Passport, or Rental Agreement.
Income Proof
Salary slips, Income Tax Returns (ITR), Form 16, or Bank Statements to assess financial eligibility.
Age Proof
Birth Certificate, Aadhaar Card, or School Leaving Certificate.
Photographs
Recent passport-size photographs for policy records.
Medical Records (if required)
Some endowment plans require a medical check-up based on age and sum assured.
Submitting these documents ensures a smooth policy approval process. Endowment plans provide financial security, guaranteed savings, and tax benefits, making them a reliable long-term investment option.
Endowment plans offer tax benefits in India, making them a preferred option for those seeking savings and life insurance coverage. Here’s how taxation works:
- Tax Deduction on Premiums:
Premiums paid towards endowment life insurance qualify for tax deductions under Section 80C of the Income Tax Act, up to ₹1.5 lakh per year.
- Tax-Free Maturity Benefits:
The maturity amount, including bonuses, is tax-free under Section 10(10D) if the annual premium does not exceed 10% of the sum assured.
In case of the policyholder’s demise, the death benefit received by nominees is fully tax-exempt under Section 10(10D).
- TDS Applicability:
If the premium exceeds 10% of the sum assured, TDS is deducted 5% on the maturity amount under Section 194DA.
Endowment plans offer a combination of financial security, guaranteed savings, and tax benefits, making them a tax-efficient investment option.
An example of an endowment plan is a life insurance policy that provides a lump sum payout after a fixed term or on the policyholder’s death, such as LIC’s New Endowment Plan.
The age limit varies by insurer, but typically, endowment plans are available for individuals between 18 and 60.
An endowment plan offers guaranteed returns with life cover, while ULIPs provide market-linked returns with investment flexibility.
Premiums are calculated based on the sum assured, policy term, age, and additional benefits like bonuses.
Endowment plans are good for risk-averse investors seeking guaranteed savings with insurance but offer lower returns than market-linked investments.
AN Sep 64/22
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