Most of us need professional assistance during financial planning. Queries such as where to invest, how to invest, which is the best option for me and my family, and several other similar questions cloud our judgments. An endowment policy can solve most of these problems as it comes with the dual benefits of a life insurance policy and savings plan.
In this article, you will learn about endowment policy, how it works and the best endowment plans available in India. Keep reading!
An endowment policy is a type of life insurance plan which combines the concepts of insurance and savings. As there are two benefits coupled within one plan, there are two different scenarios under which each will be effective. It offers maturity benefits and/or death benefits based on the applicable scenarios.
An endowment plan allows you to save a certain amount of money over a fixed period or tenure. Although it is quite similar to a savings plan, the key difference is the monetary benefit offered at the time of withdrawal.
If the policyholder survives the policy tenure, they will be able to withdraw the accumulated amount as a maturity benefit. However, if the policyholder meets with a sudden or untimely demise, the nominee will receive the amount as a death benefit. Hence, this policy can benefit both the policyholder as well as his/her family members or dependents.
Here are some notable features of an endowment policy:
Now that you know how an endowment policy works and its features, you should know about its different types. There are five different types of endowment policies:
As the name suggests, a guaranteed policy assures the policyholder of a maturity benefit. Hence, if the policyholder outlives the tenure, he/she will receive the maturity benefit. In case there’s a sudden demise of the insured, the beneficiary will receive the sum assured.
In this type of endowment plan, the premium that you pay towards the plan is invested in two parts. One part goes towards the insurance plan, and another part is invested towards various investment instruments as picked by the policyholder at the time of entering the plan. This plan is riskier than a guaranteed policy, as market-related investments are involved.
With a full profit plan, the insured receives a predetermined sum assured, which is guaranteed right from the beginning of the policy. The insured might receive a bonus as well with the maturity amount. The nominee would receive the same in case of the untimely demise of the insured.
This plan does not provide any bonuses; hence, it is referred to as “non-profit”. The insured will only receive the sum assured upon maturity, or the beneficiary will receive a death benefit.
A low-cost endowment plan allows the policyholder to accumulate wealth over a specific period. This period comes as a lock-in period only after which your policy will mature. In case the policyholder passes away before the lock-in period, the beneficiary will receive the target amount as the sum assured.
These are the eligibility criteria that you should be aware of before deciding on purchasing an endowment policy:
Along with the duly filled-up application form, a policyholder will also need to submit the following supporting documents:
There is no scarcity of options available in the market, but not all policies might be ideal for you. There are certain factors that influence the premium and tenure of your policy. These factors can be your age, income, lifestyle habits, etc. Hence, you need to be aware of your requirements before choosing an endowment policy.
Apart from this, you should consider choosing a policy provider who will work out the best for you. Check the customer reviews of the insurer, how long they have been in the industry and most importantly, their claim settlement ratio.
The premiums for an endowment policy are usually higher than other types of insurance policies. Hence, you should also be careful while adding the riders and determining the sum assured so that the premium amount stays within an affordable range for you.
In addition, do not forget to pay attention to every tiny detail mentioned under the terms and conditions so that there is no hassle while claiming the benefits.
Here is a list of the best endowment plans available in India in 2023. The list is sorted in descending order as per the claim settlement ratio of the insurers.
|Name of the Policy||Claim Settlement Ratio*||Age Criteria||Minimum Premium Amount (Annual)|
|Max Life Guaranteed Monthly Income Plan||99.34%||6 to 60 years||Rs.20,000|
|Bajaj Allianz Life Flexi Income Goal- Enhanced Benefit||99.02%||0 to 60 years||As per the minimum sum assured|
|LIC New Endowment Plan||98.74%||8 to 55 years||Rs.2750|
|HDFC Life Sanchay Plus||98.66%||5 to 60 years||Rs.30,000|
|Edelweiss Tokio Life Single Pay Endowment||98.09%||3 to 70 years||Rs.40,000|
|Aditya Birla Sun Life Insurance Assured Savings Plan||98.07%||1 month to 65 years||Rs.20,000|
|ICICI Pru Savings Suraksha Endowment Plan||97.82%||0 to 60 years||Rs.12,000|
An individual should consider looking into these factors when buying an endowment policy:
Endowment policies offer several benefits to a policyholder. Some of them have been discussed below:
Endowment policies come with dual features of insurance and savings plans. It also offers tax benefits to the policyholders. However, this policy also has some limitations or drawbacks, which you should know about before making any decision.
Plenty of policy providers offer endowment plans, as it is one of the most popular insurance plans. But how to choose the right one for you? Here are some things you need to consider before you buy an endowment policy:
One of the most important things to determine while choosing an insurer is their claim settlement ratio. It is the ratio between the number of claims made by policyholders and the number of claims settled. This also reflects how efficiently the claim settlement process of an insurance company works.
Endowment policies are usually set for the long term, which means you have to pay premiums for an extended time period. Therefore, you should carefully determine your premium amount so you can continue paying your premiums without default. Missing out on premium payments can lead to the cancellation of a policy.
Checking the financial background or status of the insurer is really important, as it will also have an impact in case you make any claims. Consider checking the solvency ratio of an insurer to get an idea about their financial stability.
Lastly, you must make sure that your investment goals and horizon match that of the plan. There are so many options, and all might not work out for everyone. Hence, make sure to choose plans as per your investment objectives and not vice-versa.
An endowment policy helps you build a savings fund by making regular investments over time. This low-risk policy option offers the combined benefit of investment and insurance, which helps to protect your family’s financial future. Make sure to keep all the above pointers in mind before playing for an endowment policy.
Ans: An endowment policy helps build a lump sum corpus over a long period of time. Hence, individuals with a regular source of income with plans for the future should consider purchasing an endowment policy.
Ans: An endowment plan offers the dual benefit of death benefit and savings depending on the terms set by the policyholder. On the other hand, term insurance offers pure life cover, which means the dependents receive financial protection in case of the policyholder’s untimely demise within the tenure.
Ans: There are primarily two types of bonuses an insurer can receive with an endowment policy – terminal bonus and reversionary bonus. You may receive a terminal bonus as an extra amount of money at the time of maturity of the policy or with a death benefit. A reversionary bonus is an additional sum you will receive with the death benefit in case of the early demise of the policyholder.
Ans: You should consider buying and investing in an endowment policy as early as possible to benefit from compounding over a longer duration. However, check the minimum age to invest with your insurer.
Ans: Like any other insurance plan, an endowment policy also comes with certain exclusions, which means that under some circumstances, the insurer is not obliged to pay. Some of these are:
• Attempted self-injury
• Being part of illegal activities
• Being a part of riots or similar events
• Being inebriated or under the influence of alcohol or substances
• Participating in high-risk sports or activities
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