Endowment Life Insurance Policy

TeamAckoNov 22, 2024

An Endowment Life Insurance Policy is a type of Life Insurance Policy that offers both insurance and investment benefits. This insurance policy pays a lump sum to the policyholder after a specified period or upon the policyholder's death. This article will cover essential aspects, including what is Endowment Plan and endowment insurance meaning. It will also discuss the benefits, features, and limitations of an Endowment Life Insurance policy in India

Contents

• What is Endowment Policy?
• How Does Endowment Plan Work?
• Who Should Consider Buying an Endowment Plan and Why?
• Benefits of Endowment Policies in India
• What are the Limitations of Endowment Life Insurance Plans in India?
• 5 Types of Endowment Life Insurance Policy
  • Explore ACKO Life Flexi Term Plan - A Life Insurance Option from ACKO
• Endowment Life Insurance vs. ACKO Life Flexi Term Plan
• Determine Which Policy Works For You
• How to Choose the Best Endowment Policy in India
• Factors Affecting Endowment Life Insurance Premium
• What are the Documents Required for an Endowment Policy?
• How to Buy Endowment Life Insurance Policy?
• How to Claim Endowment Insurance Policy?
• Wrapping It Up 
• Frequently Asked Questions

What is Endowment Policy?

Endowment Policies offer a disciplined savings avenue and provide Life Coverage for the policyholder and their family. Under an Endowment Policy, if the policyholder passes away during the policy term, the nominee receives the sum assured or outlives the policy term. However, if the policyholder survives the policy term, he or she gets the maturity benefit, which is the sum assured plus any bonuses accrued during the policy term.

Let’s understand the Endowment Life Insurance plan with an example: 

Mr Sharma purchases an Endowment Life Insurance Policy for ₹1,00,000. The policy offers a maturity benefit of ₹1,50,000 after 10 years. It also provides a death benefit of INR 1,00,000 to Mr Sharma's nominee in case of his demise during the policy term. The annual premium for the policy is INR 10,000. Over the policy term, Mr Sharma pays a total premium of INR 1,00,000. In the 10th year, he receives the maturity benefit of INR 1,50,000, resulting in a profit of INR 50,000. 

How Does Endowment Plan Work?

Here's how an Endowment Policy works in India:

Choosing the Policy: The policyholder selects an Endowment Policy based on their requirements and preferences. The policyholder decides on the sum assured, Policy Term, Premium Payment Term, and type of Endowment Policy they want to purchase.

Paying Premiums: The policyholder pays premiums regularly or as a lump sum, per the policy terms. The insurance company invests the premiums in various investment options such as stocks, bonds, and fixed deposits to generate returns.

Accruing Bonuses: The insurance company declares bonuses or profits on the premiums paid by the policyholder, which are added to the policy and paid along with the sum assured at maturity or in the event of the policyholder's demise.

Maturity Benefits: At the end of the policy term, the policyholder receives the sum assured along with any accrued bonuses or profits per the policy terms. This lump sum can be used for various purposes, such as retirement planning, children's education, or other financial goals.

Death Benefit: In case of the policyholder's death during the policy term, the sum assured, along with any accrued bonuses or profits, is paid to the nominee as a death benefit. This provides financial security to the policyholder's family in case of any unfortunate event.

Surrender Benefits: Suppose the policyholder surrenders the policy before the maturity term. then, they may receive a surrender value, a percentage of the premiums paid, per the policy terms.

Who Should Consider Buying an Endowment Plan and Why?

Endowment plans, also known as Endowment Life Insurance or Endowment Assurance Policies, are ideal for individuals seeking a combination of Life Insurance protection and savings for future needs. Here’s a breakdown of who might benefit most from an Endowment Plan and why:

Individuals Seeking Dual Benefits: Endowment Policies offer both Life Insurance coverage and a savings component within a single plan, making them ideal for those who want financial security for their loved ones and a lump-sum payout at maturity.

Financially Disciplined Savers: Endowment Plans provide a structured approach to building a financial safety net for children and spouse, offering life cover and a disciplined savings strategy useful in emergencies or unforeseen events.

Long-Term Savers and Goal Planners: Professionals such as small business owners, salaried employees, lawyers, and doctors who wish to save for long-term goals like retirement, children’s education, or major life events can benefit from Endowment Plans, which encourage consistent savings over time.

Tax-Saving Investors: For individuals seeking tax benefits, Endowment Plans are attractive as they allow for deductions under Sections 80C and 10(10D) of the Income Tax Act in India. Both premiums and maturity benefits are eligible for tax exemptions, subject to certain conditions.

Risk-Averse Individuals: Endowment Insurance is a favourable option for those who prefer a low-risk investment avenue with assured returns. While returns on Endowment Plans may be lower than high-risk investments, they offer a guaranteed sum, making them ideal for conservative investors.

Dependents-Focused Policyholders: Endowment Plans provide Life Insurance Coverage for the policyholder’s family, ensuring financial protection in case of an unfortunate event. Additionally, the maturity benefit acts as a financial cushion if the policyholder survives the policy term.

Benefits of Endowment Policies in India

Here are some of the benefits of Endowment Policies in India:

1. Insurance Coverage: Endowment Policies provide Life Insurance Coverage to the policyholder, ensuring financial security for their family in case of their untimely demise. The sum assured and any accrued bonuses are paid to the nominee in case of the policyholder's death, providing a safety net for the family.

2. Guaranteed Returns: Endowment Policies provide a guaranteed return on investment, ensuring that the policyholder receives a lump-sum payout at the end of the policy term, irrespective of market fluctuations. This Policy is a popular choice for risk-averse investors who want to secure their future.

3. Tax Benefits: Endowment Policies offer tax benefits under Section 80C of the Income Tax Act, 1961. The premiums paid towards the policy are eligible for tax deduction up to a limit of Rs. 1.5 lakh per year. The maturity amount received from the policy is also tax-free under Section 10(10D) of the Income Tax Act. 

Note: You need to opt-in for the old tax regime to get a tax benefit on Endowment Policies; also, the extent of benefits is subject to changes.

4. Loan Facility: Endowment Policies provide the option of availing a loan against the policy. The loan amount is a percentage of the policy's surrender value, and the interest rate is usually lower than other loan options.

5. Disciplined Savings Endowment Policies encourage disciplined savings, as the policyholder needs to pay premiums regularly to keep the policy active. This ensures that the policyholder regularly saves towards their financial goals and avoids the temptation to spend the money elsewhere. 

What are the Limitations of Endowment Life Insurance Plans in India?

Although Endowment Life Insurance Plans can offer financial security, it's important to consider their limitations before investing in them. Here are some of the limitations of Endowment Life Insurance Plans in India:

1. Low Rate of Return: One of the main limitations of Endowment Life Insurance Plans is their low rate of return. While these plans offer a guaranteed sum assured upon maturity, the returns on investment are often lower than what one could earn through other investment options like Mutual Funds or stocks. 

2. Longer Lock-in Period: Endowment Plans usually have a long lock-in period, which means you can only withdraw your investment after a certain number of years.

3. Higher Premiums: Endowment Plans often have a higher premium than Term Insurance Plans that only provide life cover. This can make it difficult for individuals with limited financial resources to afford these plans.

4. Lower Flexibility of Premium Payments : Endowment Plans may also have low flexibility in premium payments. Unlike other investment options like mutual funds or stocks, Endowment Plans typically require fixed premium payments. This can be problematic for individuals with fluctuating incomes or those who want to make additional contributions to their investments at irregular intervals.

5. Inadequate Coverage : Endowment Plans may not provide adequate life coverage for specific individuals. If you have dependents who rely on your income, you may need a higher coverage amount than an Endowment Plan can provide. In such cases, opting for a Term Insurance Plan with a higher coverage amount may be more suitable.

5 Types of Endowment Life Insurance Policy

Understanding the different types of Endowment Policies available in India is essential before choosing one. Here are some of the most common Endowment Life Insurance Plans.

• With-profit Endowment Policies

• Unit-linked Endowment Policies

• Non-participating Endowment Policies

• Limited Premium Payment Endowment Policies

• Money-back Endowment Policies

With-profit Endowment Policies

This type of policy is designed to offer bonuses or profits on the premiums the policyholder pays. The bonus is usually a percentage of the sum assured and is declared annually by the insurance company. The bonus is added to the policy and paid with the sum assured on maturity or in the event of the policyholder's death.

Unit-linked Endowment Policies

Unit-linked Endowment Policies provide investment options to the policyholders. The policyholder can invest in various funds, such as equity, debt, or balanced funds, based on their risk appetite. The returns on the investment depend on the performance of the fund(s) chosen by the policyholder.

Non-participating Endowment Policies

Non-participating Endowment Policies do not offer bonuses or profits on premiums the policyholder pays. The sum assured is paid along with the accrued interest on maturity or in the event of the policyholder's death.

Limited Premium Payment Endowment Policies

This type of policy requires the policyholder to pay premiums for a specific period, such as five, 10, or 15 years, and the policy remains in force for a longer period, such as 20 or 25 years. This allows the policyholder to complete their premium payments within a shorter duration and enjoy the policy's benefits for longer.

Money-back Endowment Policies

Money-back Endowment Policies are designed to provide periodic payments during the policy term. The policyholder receives a percentage of the sum assured at specific intervals, such as every three or five years. The remaining sum assured, along with bonuses, is paid at maturity or in the event of the policyholder's death.

Explore ACKO Life Flexi Term Plan - A Life Insurance Option from ACKO

ACKO Life Flexi Term Plan is a unique term plan that has useful features and promises to provide your loved ones a financially stable future with the amount of money you choose for them. Some of the key advantages include:

You can add riders such as Critical Illness, Accidental Death, and Total Permanent Disability to enhance your protection. That’s not all! Buying or filing claims for your Term Insurance Policy with ACKO is simple, as it takes minimum paperwork.

Find the right plan-->

Endowment Life Insurance vs. ACKO Life Flexi Term Plan

The Endowment Life Insurance policy balances life coverage and investment. In contrast, the ACKO Life Flexi Term Plan provides a cost-effective and flexible plan that can be easily customised to your needs.

Determine Which Policy Works For You

If you plan to take a Life Insurance Plan to protect your loved ones, consider various things before making a final decision. 

How to Choose the Best Endowment Policy in India

Choosing the right Endowment Policy can help you secure your financial future and provide financial security to your loved ones. Here are some tips to help you choose the best Endowment Policy in India.

Assess your Financial Goals: Before choosing an Endowment Policy, assess your financial goals and requirements. Decide how much money you want to save, how long you want to save for, and what kind of returns you are looking for.

Compare Policies: Compare different endowment policies offered by various insurance companies regarding premium payment terms, policy terms, sum assured, and payout options. Look for policies that provide the best combination of insurance coverage and returns.

Check the Bonus Structure: Endowment Policies provide bonuses or profits on the premiums paid by the policyholder. Check the bonus structure of the policy and the company's track record of declaring bonuses before making a decision.

Check the Claim Settlement Ratio (CSR): The claim settlement ratio of an insurance company can be one of the important matrices used to check its reliability. Consider choosing an insurer with a high CSR to ensure that your family receives the financial benefit of your Endowment plan after your demise.

Read the Fine Print: Read the terms and conditions carefully before choosing an endowment policy. Understand the premium payment terms, policy terms, payout options, and other policy details to avoid any later surprises.

Factors Affecting Endowment Life Insurance Premium

Some of the factors that affect Endowment Life Insurance Premiums are as follows: 

Risk Assessment: Insurance companies assess the risk associated with insuring an individual based on age, health status, occupation, and lifestyle habits. Younger individuals with good health typically pay lower premiums as they pose a lower risk to the insurer.

Coverage Amount: The higher the coverage amount or sum assured, the higher the premium. This is because the insurer commits to paying out a larger sum in case of a claim, leading to increased risk for the company.

Policy Term: The length of the policy term also influences the premium. Longer terms generally result in higher premiums due to the increased likelihood of the insured claiming over a longer period.

Rider Additions: Additional coverage options, known as riders, can be added to the base policy for enhanced protection. These riders come at an extra cost, thus increasing the premium amount. An Endowment Life Insurance Policy can also offer additional riders for added protection, such as: 

• Critical Illness Rider: This rider provides a lump sum payment to the insurer if the insured is treated for a critical illness covered under the policy. 

• Disability Income Rider: This rider offers a regular income if the insured becomes disabled and unable to work or feed their family. 

• Waiver of Premium Rider: This unique rider waives future premium payments if the insured becomes disabled or critically ill.

• Accidental Death Benefit Rider: This rider pays an additional sum if the insured passes away due to an accident.

Interest Rates: Insurance premiums may be influenced by prevailing interest rates. Higher interest rates can lead to lower premiums as insurers may generate more income from investments.

Underwriting Guidelines: Each insurance company has its underwriting guidelines, which may vary based on market conditions and company policies. These guidelines impact premium rates.

Understanding all the above factors helps an individual to make informed decisions when choosing an Endowment Life Insurance Plan. 

What are the Documents Required for an Endowment Policy?

Specific documents are needed at each stage when applying for, claiming maturity benefits, or filing a death claim for an Endowment Life Insurance Policy. Here’s a breakdown:

1. Documents Required for Application:

   • Application Form: A completed and signed application form.

   • Photograph: A recent passport-sized photo of the applicant.

   • Address Proof: Proof of address, such as an Aadhaar card, utility bill, or bank statement.

   • Income Proof: Documents like salary slips, bank statements, or tax returns to verify income.

2. Documents Required for Maturity Claim:

   • Discharge Voucher: A signed discharge voucher acknowledging receipt of the maturity amount.

   • Original Policy Document: The original Endowment Policy Document is proof of ownership.

3. Documents Required for Death Claim:

   • Death Certificate: An official death certificate of the policyholder.

   • Claim Form: A completed and signed claim form by the nominee or beneficiary.

   • Original Policy Document: The original endowment policy document.

   • Assignment/Reassignment Deeds: If applicable, any assignment or re-assignment deeds related to the policy.

   • Discharge Form: A signed and witnessed discharge form authorising the insurer to release the claim amount to the beneficiary.

These documents ensure smooth processing at each stage of the endowment policy, from application to claims. Having these on hand can streamline the process and minimise delays.

How to Buy Endowment Life Insurance Policy?

Purchasing an endowment assurance policy is straightforward if you follow these steps:

• Determine Your Coverage Needs: Assess your financial goals, income, and long-term savings plans to decide on the Endowment Life Insurance amount that best suits your needs. Consider factors like desired payout, premium affordability, and policy term.

• Research Insurers and Plans: Compare different insurers offering Endowment Plans and evaluate premium amounts, policy terms, and benefit structures. Understanding the features of each Endowment Plan can help you choose the most suitable option.

• Complete the Application and Medical Requirements: Once you’ve selected an Endowment Plan, complete the application and any other required medical or fitness assessments.

• Provide Financial Documentation: To meet underwriting requirements, submit proof of income or net worth as the insurer needs.

• Review Policy Terms Carefully: Check details such as riders, bonuses, loan interest rates, exclusions, and any available dividends that apply to the Endowment Policy before signing.

• Choose a Payment Schedule: Select a convenient premium payment schedule—monthly, quarterly, semi-annually, or annually—and submit your payments accordingly.

By following these steps, you can confidently purchase an Endowment Insurance Policy that helps secure your financial future while offering Life Insurance Protection.

How to Claim Endowment Insurance Policy?

If you need to claim an Endowment Life Insurance, following the correct steps and submitting the necessary documentation is important. Here’s a guide to understanding the claim process for Endowment Insurance:

1. Notify the Insurer

The beneficiary or nominee should inform the insurance company of the policyholder’s death immediately. Prompt notification helps in starting the claim process efficiently.

2. Filling Out the Claim Form

The insurer will provide a claim form once they are notified of the loss. This form needs to be completed by the beneficiary or nominee. Here’s what is typically required:

• Claimant’s Signature: The nominee, beneficiary, or legal heir should sign the claim form.

• Medical Loss Statement: The last treating doctor must provide a statement verifying the circumstances of death.

• Hospital Certificate: A certificate from the hospital where the insured was treated should be submitted.

• Death Certificate and Witness Statement: An official death certificate and a witness statement (often from someone present during the cremation or burial) are required.

• Discharge Voucher: Some insurers may require a discharge voucher, which must be signed and submitted to release the benefit payment.

3. Additional Documents for Unnatural Death

In cases where the policyholder’s death was due to unnatural causes, additional documents are required to expedite the process:

• Post-Mortem Report and Police Documentation: A certified post-mortem report, a police investigation report, and a First Information Report (FIR) are needed to confirm the cause of death.

• Employer’s Certificate: An employer’s certificate may be required as additional verification if the insured was employed.

By providing these documents, beneficiaries can ensure a smooth process for claiming the endowment policy benefits. Understanding what is endowment insurance, its purpose, and the documentation required for claim settlement can help beneficiaries promptly receive the intended financial protection.

Wrapping It Up 

An Endowment Life Insurance coverage may be a precious financial instrument for individuals looking to stabilise their future and that of their loved ones. By understanding the Endowment Plan meaning, you’ll notice it combines both insurance protection and savings, offering peace of mind in case of unexpected events. However, it's essential to cautiously bear in mind the terms and situations of the coverage and seek professional advice before making a decision.

Frequently Asked Questions

Below are some of the frequently asked questions on Endowment Life Insurance Policy

What is the difference between endowment insurance and Term Life Insurance?

Endowment Insurance combines life coverage with a savings component, providing a lump sum at maturity or upon death. In contrast, Term Life Insurance offers coverage for a specific period without any maturity benefit; it only pays out if the policyholder dies during the term.

How are bonuses in Endowment Plans determined?

The insurance company typically declares bonuses based on performance and profits in Endowment Plans. These bonuses are added to the sum assured and paid out at maturity or upon death.

Is an Endowment Plan suitable for retirement planning?

An Endowment Plan can be part of a retirement strategy, offering a lump sum at maturity. However, assessing its returns is essential compared to other retirement savings options.

How is the sum assured calculated in an Endowment Life Insurance Policy?

The sum assured in the Endowment Life Insurance Policy is calculated based on the policyholder's age, health condition, and financial needs. It is the amount paid to the beneficiary in case of the policyholder's death. The sum assured may include additional benefits such as accidental death or disability.

What happens if the policyholder stops paying Endowment Life Insurance Policy premiums?

If the policyholder stops paying premiums for Endowment Life Insurance Policy in India, the policy will lapse, and the life cover and savings component will cease. The policyholder can revive the policy within a specific period by paying the unpaid premiums and interest. If the policy is not revived, the policyholder will not receive any benefits, and the policy will be terminated.

 Is the maturity amount for an Endowment Life Insurance Policy guaranteed? 

Yes, the maturity amount for Endowment Life Insurance Policy is generally guaranteed and predetermined while buying the policy. It includes the sum assured and any bonuses that may accrue during the policy term. The policyholder is typically provided with a projection of the maturity amount when purchasing the policy.

What is an Endowment Insurance Plan with a 20-year term?

A 20-year Endowment Policy meaning is to secure life with Life Insurance for 20 years. A death benefit is paid to the policyholder's beneficiaries if they pass away within this time. A maturity benefit is given to them if they live through the term. Until dependents, like small children and spouses, gain their independence, this policy can help guarantee their financial support.

Is an Endowment Plan safe?

Yes, an Endowment Plan is generally considered a safe investment. It combines Life Insurance with a savings component, offering both death and maturity benefits. Additionally, it provides tax benefits, making it an attractive option for securing financial goals.

Can an Endowment Plan be surrendered?

Yes, you can surrender your Endowment Plan after it has been in force for at least 3 years. However, surrendering early may result in receiving less than the premiums paid. The guaranteed surrender value is typically 30% of the basic premiums, excluding the first year’s premium.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.

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