What is an Endowment Policy and how it works

endowment policy

An endowment policy is a life insurance and savings policy. Through this policy you can insure your life as well as save regularly. At the end of the tenure of the policy you get a lump sum.

Endowment policies are costlier than savings policy due to the savings component and the regular premiums payable are higher than sole life insurance policies.

If the insured dies before the end of the tenure of the policy then beneficiaries can claim the insurance amount as well as the lump sum accrued amount. If the insured is alive at the end of the tenure then the assured amount and the lump sum is given to the insured.

Endowment Policies can be ULIP linked or Non ULIP linked, the former type is the unit linked insurance plan in which the policy is linked to the profits of the insurance company and the insured also receives bonuses if applicable.

Choosing an Endowment Policy

The best endowment policies of India for the year 2016 include Reliance Life Insurance Super Endowment Policy, Kotak Classic Endowment Policy, LIC New Endowment Policy, HDFC Life Endowment Assurance Policy, SBI Life Endowment Policy, Reliance Endowment Policy, Kotak Premium Endowment Policy, Aviva Dhan Nirman Endowment Policy, Bajaj Alliance Endowment Policy, AEGON Life Premium Endowment Policy, IDBI Federal Endowment Policy.

The various endowment policy offers differ on several aspects which include:

  • Policy term: ranges from 14 to 30 years
  • Premium Paying Mode: quarterly, half yearly, monthly or yearly
  • Minimum Sum Assured: ranges from 10,000 to 2,00,000 and also ten times the value of annual premiums paid
  • Maximum Sum Assured: no maximum limit.
  • Premium Paying Term: ranges from 5 to 30 years.

You can choose from the different endowment policies as per your preferences regarding these aspects. Other considerations for making a choice would include amount of premiums payable, ROI on total investment plans, performance of various policies over a time period, credibility of insurance firms, service of insurance firms, new offers and announcements including benefits, risk appetite.

Why should you buy an Endowment Policy?

An endowment policy encourages disciplined savings behavior and takes care of financial needs during financial crisis. Endowment policies provide insurance coverage as well as savings accrual and the savings amount accrued at the end of the tenure is generally higher than other savings options available. The policy has a risk free component under which a certain sum is assured, some endowment policies may also include profit component but that is not guaranteed. Endowment plans provide regular as well as flexi premium plans as well as premium waivers.

The policy can even be prematurely surrendered provided premiums for three years have been paid. For surrendered policies also benefits are payable but are reduced in proportion.

Features and Benefits of Endowment Plans:

  • Face value of policy is assured or guaranteed.
  • Additional bonus is also paid if applicable.
  • Risk is low as face value is guaranteed.
  • Flexi and single premium plan policies are also available.
  • Premium waiver benefit.
  • Tax benefits can be availed under section 80 C and 10 D of the income tax act.
  • Includes accidental death benefits.
  • Accident permanent /total injury benefit or partial disability benefit.
  • Critical illness benefit.
  • Hospital cash benefit.
  • Loans against policy can be availed in case of emergencies.

Eligibility:

Endowment policies can even be bought for minors (child plans for future) and the minimum entry age can be 5 years whereas the maximum entry age can be 60 years.

In case of minors the policy has to be under the guardianship of a mature person who can be parents or guardians.

Exclusions:

In certain cases benefits may not be payable such as in the case of suicide of insured within 12 months. In such cases about 80 % of premiums paid may be retrieved by the beneficiaries.

Documents:

The documents include identity proof, address proof, salary/income proof,  Pan number. Documents in support of such proofs may include Aadhar card, Pan card, passport, salary/income statement, bank account statement, electricity/gas bill, photographs.

Claim Process:

For claiming the benefits of the plan an application should be submitted to the firm, thereafter the firm will send communication to the insured/beneficiaries regarding all the required documents. All these documents after being duly filled should be submitted to the firm. The firm conducts a check upon these documents and releases the approved benefits in due course of time.

 

About Sashi 42 Articles
Sashi Singh is content contributor and editor at IP. She has an amazing experience in content marketing from last many years. Read her contribution and leave comment.

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