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Endowment Life Insurance Policy

TeamAckoMay 13, 2024

Endowment Life Insurance Policy is a popular 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 discuss the benefits, features, and limitations of an endowment life insurance policy in India.

Contents

What is Endowment Life Insurance Policy?
How Does Endowment Life Insurance Work?
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
Endowment Life Insurance Cash Value
- What is Cash Value?
- How Does Cash Value Grow Over Time?
Determine Which Policy Works For You
How to choose the best Endowment Policy in India
Factors Affecting Endowment Life Insurance Premium
How to Buy Endowment Life Insurance Policy?
Wrapping It Up
Frequently Asked Questions

What is Endowment Life Insurance Policy?

Endowment Life Insurance Policy is a type of life insurance that combines life coverage with savings. Under an Endowment Policy, if the policyholder passes away during the policy term, the nominee receives the sum assured or the death benefit. 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. Endowment Policies offer a disciplined savings avenue and provide financial security for the policyholder and their family.

Let’s understand the endowment life insurance plan with an example:

Mr Sharma purchases an Endowment Life Insurance Policy for INR 1,00,000. The policy offers a maturity benefit of INR 1,50,000 after 10 years. Additionally, it 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 Life Insurance 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 death.
Maturity benefits At the end of the policy term, the policyholder receives the sum assured along with any accrued bonuses or profits, as 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 decides to surrender the policy before the maturity term. In that case, they may receive a surrender value, a percentage of the premiums paid, per the policy terms.

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 death. 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. Endowment Policies are 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 compared to 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.

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 5, 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 a longer time.

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 3 or 5 years. The remaining sum assured, along with bonuses, if any, 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 packed with useful features and promises to provide your loved ones with a financially stable future with the amount of money you choose for them. Some of the key advantages include:

Adaptable Sum Assured	Flexible Policy Tenure	Flexible Payout Options
Will Creation Service	Affordable Premiums	Add or change Nominee

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, with 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.

Basis of comparison	Endowment Life Insurance	ACKO Life Flexi Term Plan
Coverage Duration	Balances between life cover and investment.	Customise coverage throughout the policy period. Increase or decrease your tenure as your financial dependents, loans (home, car, education), lifestyle, and income change.
Premiums	Higher premiums due to investment component.	Lower Premium Rates
Cash Value	The plan builds up a cash value that increases with time.	No cash value or investment component.
Flexibility	Limited, premium, and sum assured remain fixed throughout the policy term.	More flexible to modify coverage amount.
Costs	Expensive premiums as compared to term plans	Highly affordable, with the flexibility to change the coverage and duration.
Payout	Typically, 15-20 times the annual income.	Pays if death occurs during a set term period.
Good For	People seeking to combine life insurance with long-term savings.	Suitable for everyone, including those with debts like home loans and more.
Tax Benefits	Premiums and maturity amounts are tax-free.	Premium and payout are tax-free.
Coverage Duration	Exclusively meets the ambiguities of life.	Increase or decrease your tenure as your financial dependents, loans (home, car, education), lifestyle, and income change.

Endowment Life Insurance Cash Value

What is Cash Value?

Think of the cash value like a special financial savings account that a portion of your premiums often feed into. The money accumulates 100 % tax-free based on a preset guaranteed interest rate. Moreover, many insurers even pay bonuses above that minimum fee.

How Does Cash Value Grow Over Time?

The cash fee of an endowment life coverage policy grows through the years because of the investments made with the aid of the insurance organisation.

These investments may additionally consist of shares, bonds, and other property. The growth price of the cash value depends on the overall performance of these investments, which may vary depending on market fluctuations and financial conditions. Additionally, a few policies provide a guaranteed minimal interest rate for the cash value, ensuring consistent increases.

The longer the coverage is held, the more time it has to accumulate interest and potentially boom in value. However, it's critical to keep in thoughts that the cash value might grow differently than predicted because of different factors, including underperformance of investments or early surrender of the policy. So, it’s crucial to cautiously bear in mind these factors before selecting an endowment life coverage policy.

Overall, the cash value of an endowment coverage can increase over the years, presenting a valuable financial savings issue for the insured.

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.

Situation	Recommended Policy
Need partial withdrawals	Endowment Life Insurance Plan
Limited budget or temporary coverage needs	ACKO Life Flexi Term Plan
Prioritise flexibility and customisation	ACKO Life Flexi Term Plan
Benefits of both death and maturity	Endowment Life Insurance Policy
Seeking polished digital-first experience	ACKO Life Flexi Term Plan
Aiming for investment alongside	Endowment Life Insurance Plan
Uncertain about long-range financial needs	ACKO Life Flexi Term Plan

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: Before choosing an endowment policy, read the terms and conditions carefully. Understand the premium payment terms, policy terms, payout options, and other policy details to avoid any surprises later on.

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: It provides a lump sum payment to the insurer if the insured is treated with a critical illness covered under the policy. Disability income rider: Offers a regular income if the insured becomes disabled and unable to work or feed their family. Waiver of premium rider: Waives future premium payments if the insured becomes disabled or critically ill.
Accidental death benefit 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.

How to Buy Endowment Life Insurance Policy?

Buying an endowment life insurance policy is a very simple process:

Determining the perfect death benefit policy based on earnings needs and desires.
Researching insurers while calculating projected monthly or yearly premium fees at one-of-a-kind coverage ranges.
Completing the policy application and medical/fitness assessments if required.
Providing financial documentation verifying earnings net worth to meet underwriting necessities.
Review policy terms like riders, dividends, loan interest rates, and exclusions before signing.
Submit payment yearly, semi-annually, or monthly, depending on the schedule you have selected.

Wrapping It Up

An endowment life insurance coverage may be a precious economic device for individuals looking to stabilise their future and that of their loved ones. It gives both coverage protection and savings, presenting peace of mind in case of surprising activities. 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

Can Endowment Life Insurance Policy in India be surrendered before maturity?

Yes, you can surrender your Endowment Life Insurance Policy before maturity. Suppose the policyholder surrenders the policy before the completion of the policy term. In that case, they will receive a surrender value calculated based on the number of premiums paid, the policy term, and the sum assured. However, the surrender value may be lower than the total premiums paid.

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

The sum assured in 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 benefits.

What are the bonuses in an Endowment Life Insurance Policy?

Bonuses in Endowment Life Insurance Policy are additional payouts that the insurer makes to the policyholder.

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.

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.