Life Insurance Endowment plans
An endowment policy 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. Some policies also pay out in the case of critical illness. They are plans that not only cover the individual’s life in case of an unfortunate event, but also offer a maturity benefits at the end of the term. After a specific period of time- called ‘maturity’- they are designed to pay a lump sum amount. The insurance company will pay this assured sum to the endowment policy holder’s nominees in case of holder’s death or to the holder himself on a fixed date in the future. Upon maturity, the insured receives the sum assured plus the bonus for the term of the policy, if any. Thereafter, the insured is not covered by the policy.
How to Purchase an Endowment Plan?
One should consider the following before purchasing an endowment plan:
- Make an Early Start: Making investments at an earlier age offers a longer horizon to invest and this ensures better and sustainable returns. This aids the insured to build a vast corpus over time.
- Review different types of Endowment Policies: If an individual wants to invest in endowment plans, it is necessary for him/her to make frequent premium payments and hence one should evaluate all plans available in the market before investing.
- Increase Coverage through Rider Options: A lot of insurance companies offer additional benefits like education endowment, double endowment policy, or marriage endowment policy. One must keep such riders in mind while buying one for them. Some insurers also provide additional riders towards surgical assistance or critical illness, accidental death & disability.
- Utilise Payment Flexibility option: There are various flexible options for premium payment depending on the income stability of the insured. If the insured is a salaried individual one may choose a regular payment endowment policy. There are single payment options for individuals with business income or for those having an immediate corpus and looking for an investment.
- Bonus Track Record of the Insurer: Bonuses are provided by the insurance companies as per the performance of the company. An insurance provider, who makes profits from his/her investments, distributes some part of the profit at the end of every policy year. Evaluate the track record performance of the insurance company on bonuses while choosing the plan.
- Guaranteed Returns: Apart from low-risk insurance policies and dual benefits of savings and death cover, many of the endowment plans as well provide a combination of non-guaranteed and guaranteed returns. These should be evaluated prior to deciding on the plan.
- Claim Settlement Ratio & Solvency Ratio of the Insurance Company: The Claims settlement ration tells the insured what percentage of claims have been paid out by the insurance company. The higher the ratio, the better. The Solvency ratio mentions whether the insurance company will be able to honour its claims in the future. Once again, look for a high ratio for solvency. The IRDA requires insurers to have a solvency ratio of at least 1.5.
Benefits of Endowment Plans
Some of the important benefits of Endowment plans include:
- Insurance Coverage : An endowment policy provides insurance cover during the policy term to the insured and this ensures financial support to the family at the unfortunate incidence of the demise of the insured.
- Lump Sum Payout : It provides a lump sum payout to the nominee at the time of the demise of the insured or to the policy holder when the policy matures (i.e. at the end of the policy term).
- Low-Risk Investments / Long Term Savings: When it comes to investing, endowment policies are considered as a relatively safer option than other types of investments while offering long term savings with policy terms ranging from 10, 15, 20, 30 to 40 years.
- Provides Tax Benefit: The insured/policy holder is entitled to get tax exemption on both premium payments, maturity and final payouts under the Section 80C and Section 10(10D) of the Income Tax Act, 1961.
- Dual Benefit Plan : An endowment policy serves the insured with a dual purpose as it not only works as an insurance policy but also offers you with long term investment benefit to take care of creating a corpus for a later date.
- Provides option to add riders : With Endowment policies, one gets an option to enhance their coverage by opting for additional riders like critical illnesses, waiver of premium, family income benefit, accidental death benefit, and accidental permanent total / partial disability benefit.
- Additional Bonuses : Insurance companies also declare bonuses on a periodic basis. Here, the bonus is the extra amount of money added to the proceeds, which is distributed to a policyholder by an insurer at the time of maturity or premature death of the insured. The bonuses can be classified as follows :
- Reversionary Bonus : This is the additional money that is added to the amount payable on maturity or death with profit policy. Also, once a revisionary bonus is announced, it cannot be withdrawn even if the policy matures or on the death of the insured person.
- Terminal Bonus : The insurance company will add a discretional amount of money after completion of a fixed term say 10 or 15 years to the payment made on the maturity of an insurance policy or on the death of an insured person.
Endowment policies are broadly classified into the following types:
- Without profit : These policies are also known as Term insurance plans offer the nominee the sum assured only, upon death of the insured.
- With Profit : In this type of policy, in case of policy holder’s death, the nominee receives sum assured plus applicable bonus. In case of survival upto the policy term the insured receives sum assured plus bonus for the term of the policy.
- Unit Linked Endowment Plan : Under Unit Linked policies, the insurance premiums are bifurcated into multiple units held under a specific investment fund which can be chosen by the policyholders.
- Low-Cost Endowment : This type of endowment plan are designed with an intention of allowing the policyholder to accumulate a corpus payable at a specified time.
Rider Benefits for Endowment Plans
There are various additional rider benefits that are available for the insured to choose from as per your requirement certain additional benefits that help in enhancing the policy coverage to be as comprehensive as possible:
- Accidental Death Benefit
- Accidental Permanent Total/ Partial Disability Benefit
- Family Income Benefit
- Waiver of premium Benefit
- Critical Illness Benefit
- Hospital cash Benefit
- Accidental Death Rider: The rider gives policyholder an additional benefit of accidental death along with the existing death benefit. In other words, the nominee gets accidental death benefit in case of accidental death of the policyholder along with the death benefit.
- Disability Rider: This rider is also most useful as it provides financial help to the policyholder in case of permanent or partial disability following an accident. Sometimes accidents do not result in death but disability and hence this rider becomes relevant in such cases.
- Waiver of Premium: With this rider, the policyholder is not liable to pay any further premiums for his/her endowment plan if he/she suffers or is diagnosed from/with permanent disability or critical illness.
- Critical Illness Cover: This rider come into effect 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. The critical illnesses are listed and defined in the policy terms and conditions and this ensures the insured is aware of such coverage.
- Hospital Cash Benefit: Under this rider, the policyholder gets a daily allowance in case of hospitalization as a result of an accident/sickness for covering incidental expenses at the hospital. With cash benefit, this rider also covers post-hospitalization expenses.
Salient Features of Endowment Policy
The salient features of Endowment policies are as follows:
- Death Benefit along with Survival benefits including Bonuses: The insured’s nominee 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 on maturity if he/she outlives the policy.
- Flexibility in Cover: The insured can add riders, such as critical illness, total disability, and accidental death, to the plan and increase the scope of the coverage and the life cover. A few plans also give offer premium payment waiver in case of permanent disability or critical illness.
- Premium Payment Frequency: 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.
- Low Risk: 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.
- Higher returns: 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 but relatively lower than ULIP plans.
- Tax Benefits: The policyholder gets tax exemption on both the premium payments and maturity or final death payouts, under Section 80C and Section 10(10D), respectively.
Life Insurance Endowment insurance products
Max life Endowment plans
- Endowment plan helps you in saving regularly over a specific period of time, so that you are able to get a lump sum amount on policy maturity, if the policyholder survives the policy term.
Aegon Life Endowment plans
- Aegon Life’s Jeevan Riddhi Insurance Plan gives the insured 5% guaranteed additions on Sum Assured during the premium payment term.
Edelweiss Endowment plans
- Endowment plan provides with a combination of both an insurance cover as well as an savings plan.