An endowment policy is a form of life insurance coverage that combines the benefit of life insurance and savings under a single policy. The death benefit offered under an endowment plan helps policyholders protect their families from unforeseen circumstances. Unlike a term insurance cover, endowment policies provide maturity benefits if the insured person outlives the policy term. With regular investments, policyholders can build a corpus large enough to take care of specific milestones like retirement, children’s education, buying a house, etc., while also having the added advantage of life coverage.
Being a savings-oriented life insurance plan, most of the endowment policies in the market provide guaranteed returns for policyholders along with additional bonuses. The savings portion of the money invested in an endowment policy is invested in bonds and other securities to generate returns. Endowment policies are ideal for investors who prefer risk-free, long-term investments. Most of the top insurers in the market have endowment plans in their product lineup. The benefits and returns may vary from one policy to another. If you are looking for an endowment policy to invest, you need to do quick research about the products available in the market and pick the best one suitable for you.
The sum assured offered by a term insurance policy is paid only if the insured person dies within the policy term. However, this is not the case with an endowment policy. A plan that gives you both maturity benefits and death benefits is better in case you outlive the policy. An endowment policy not only helps your family in case of your demise, but also helps you take care of large expenses that come later in life, such as education of children or grandchildren, children’s wedding, medical procedures, retirement needs, buying a house, etc.
Some of the best endowment policies available in India are listed below:
|Policy names||Entry age||Maturity age||Policy term||Premium payment option||Sum assured (minimum)||Sum assured (maximum)||Premium paying term|
|LIC New Endowment Plan||8 to 55 years||Up to 75 years||12 to 35 years||Regular only: monthly, quarterly, semi-annually or annually||Rs.1 lakh||Unlimited||Throughout policy period|
|Kotak Classic Endowment Policy||0 to 55 years for Regular Pay 0 to 60 years for Limited Pay||18 to 75 years||15 to 30 years||Regular and Limited: monthly, quarterly, semi-annually or annually||Depends on the premium and policy period||Unlimited||Throughout the policy duration for Regular Pay and as per chosen period for Limited Pay|
|HDFC Life Sampoorn Samridhi Plus||30 days to 60 years||18 to 75 years||15 to 40 years||Limited Pay: monthly, quarterly, semi-annually or annually||Rs.65,463||Unlimited||5 years less than policy tenure|
|PNB MetLife Endowment Savings Plan Plus||18 to 50 years for Regular Pay annual premium payment 18 to 45 years for Regular Pay monthly/semi-annual premium payment 18 to 55 years for Limited Pay annual premium payment 18 to 50 years for Limited Pay monthly/semi-annual premium payment||65 years for Regular Pay 80 years for Limited Pay||Regular Pay: 10 to 15 years Limited Pay: 10 to 25 years||Regular and Limited: monthly, semi-annually or annually||Rs.2,20,000||Unlimited||Regular or Limited Pay for 5 years, 7 years or 10 years|
|Bajaj Allianz Save Assure Plan||1 to 60 years||18 to 75 years||15 or 17 years||Monthly, quarterly, semi-annually or annually||Rs.1 lakh||Unlimited||5 years less than the policy tenure|
|Reliance Nippon Life Super Endowment Plan||8 to 60 years||22 to 75 years||14 and 20 years||Monthly, quarterly, semi-annually or annually||Rs.1 lakh||Unlimited||Half of the policy term|
|SBI Life Smart Bachat||8 to 50 years||Up to 65 years||10 to 25 years||Monthly, quarterly, semi-annually or annually||Rs.1 lakh||Unlimited||5 to 15 years|
Like all insurance plans, you have to pay a premium amount as per the decided frequency every year. A part of this premium will go towards the sum assured, a small part will cover your fees and administrative expenses, while another part will be invested for you in bonds, funds and other investment forms. Some endowment plans give you extra benefits such as cashback, annual bonuses, and vested/reversionary bonuses at maturity. You can add riders to the plans to increase your protection and get a higher death benefit or maturity benefit. If the policyholder dies before the date of maturity, his/her nominee will receive the death benefit, which includes the sum assured amount and the guaranteed bonuses. If the policyholder survives the policy term, the company will pay the maturity proceeds as per the policy terms. So for a slightly higher premium amount, you get both life protection and profits at the end of the tenure.
You should go for an endowment plan under the following circumstances:
The following types of endowment policies are available in the Indian market currently:
Other than this, endowment policies can be differentiated based on payment of premiums as given below:
Some of the notable features and benefits of endowment policies are listed as follows:
At the time of purchasing a life insurance policy, you will most likely have a range of product types to choose from. Insurance companies usually have a varied product mix, including ULIPs, term insurance plans, endowment policies, child insurance plans, etc. Some of the most popular among these products offered are term insurance plans and endowment insurance plans.
What is a Term Insurance Plan?
Term insurance plans are protection-oriented and offer the policy buyer a life cover for the duration of the policy tenure. Thus, if the policyholder passes away while the policy is still active, the insurer will pay a lump sum death benefit to the nominee. Term insurance plans are popular since they offer a high sum assured at a relatively low premium rate. However, under a term insurance plan, no benefit is typically paid out if the policyholder survives till the end of the policy tenure.
What is an Endowment Plan?
An endowment insurance plan, on the other hand, is a policy that provides a risk cover against death on the life of the policyholder and also provides a lump sum benefit at maturity of the policy. Thus endowment plans provide the policyholder both protection cum savings features, making them useful when it comes to long-term wealth creation.
Which policy type should you opt for?
Listed below are a few factors that you should consider before you select a certain type of life insurance policy.
In addition to all the factors mentioned above, it is vital that you consider your stage of life, needs, and liabilities before opting for a certain type of insurance plan. While no one policy can be classified as the best endowment policy or the best term insurance plan, you can ensure that you find the right policy by comparing policies online, either on the insurer’s official website or through trusted third-party websites, and opting for a policy that offers benefits that match your needs at an affordable cost.
Before you select an endowment policy, consider the following:
Each endowment policy by different insurers has different eligibility criteria. The common parameters are:
Many insurers might also need you to declare your existing illnesses.
The most common documents that insurers ask applicants to produce are:
A premium calculator is a financial tool that allows you to estimate how much premium you would be required to pay if you are buying a specific policy. Each insurer that has a website has an online premium calculator. The calculators are simple to use, as you need to enter information only about the policy you are interested in, your current age, the policy term you wish for, and the amount you want as sum assured or death benefit. Some calculators, such as the LIC India premium calculator, also allow you to factor in riders.
Let us illustrate this using the LIC Premium Calculator. We shall input the following details and see what the result is:
Plan: New Endowment Plan
Age: 21 years
Term: 30 years
Sum Assured: Rs.4 lakh
Accident Benefit: Yes
When we click on ‘Calculate’, the result is –
Riders are extra benefits that can be added to an insurance policy at a slightly higher premium. Different insurers offer different set of riders for the endowment policy. Among the most common riders are:
The rate of bonus of an endowment policy depends on the insurer and the policy you buy. There is no guarantee on how much the bonus would be, especially in a participating unit-linked plan. However, for illustrative purposes, let us look at the policy bonus rates of the last three years of LIC India, the country’s largest insurer:
|Policy||Term||Bonus rates per Rs.1,000 in 2014||Bonus rates per Rs.1,000 in 2015||Bonus rates per Rs.1,000 in 2016||Bonus rates per Rs.1,000 in 2017|
|Endowment-Type Plans||Less than 11 years||34||34||34||34|
|11 to 15 years||38||38||38||38|
|16 to 20 years||42||42||42||42|
|More than 20 years||48||48||48||48|
|New Endowment Plan||12 to 15 years||38||38||38||38|
|16 to 20 years||42||42||42||42|
|More than 20 years||48||48||48||48|
|Single Premium Endowment Plan||10 to 15 years||40||41||41||41|
|16 to 20 years||45||46||46||46|
|More than 20 years||50||51||51||51|
A bonus rate of Rs.50 per Rs.1,000 – which is 5% - means that for a sum assured of Rs.1 lakh you would get a bonus of Rs.5,000.
There are several kinds of bonuses that are associated with endowment policies. Every insurer may not give all these bonuses, and each insurer may have a separate jargon for the bonus given. Let us look at some common bonuses in brief:
To make a claim on an endowment policy, you need to follow the below-listed steps:
If you are making a maturity benefit claim, things would be easier, as the company itself will remind you about the upcoming maturity of your plan. You will need to confirm identity documents and the company will send you a voucher or discharge form, which you have to sign and return. You will need to give back the original policy document and send a cancelled cheque or passbook copy to confirm your bank account number.
Some of the key differences between endowment policies and mutual funds are:
|Endowment policies||Mutual funds|
|They have a life insurance cover.||They are exclusively for investment purposes and do not provide any life coverage.|
|They do not always invest in equity or debt instruments in the market.||They are market linked and invest primarily in equity and debt instruments.|
|The returns offered by endowment policies are typically lower than mutual funds.||The returns offered by mutual funds are typically higher than endowment plans.|
|Endowment policies are mostly risk-free.||Mutual funds have a certain level of risk on the investments.|
|They have lower administrative costs.||The administrative costs are higher than those of endowment policies.|
|Tax relief is offered for both premium payments as well as proceeds.||Tax relief is offered only for the invested amount. Long-term capital gains are taxable.|
Endowment policies and money-back plans are types of life insurance products that in addition to providing a risk cover to the policyholder also serve as an effective savings instrument. These policies are ideal for individuals who are looking for a protection-cum-savings option. Listed below are certain key aspects of these policies:
|Endowment policies||Money-back policies|
|They provide life insurance coverage for the policyholder||They provide life insurance coverage for the policyholder.|
|They offer maturity benefits at the end of the policy term.||They offer maturity benefits at the end of the policy term.|
|There is no survival benefit in regular endowment plans.||They offer survival benefit at specific intervals after the completion of certain policy years.|
|The maturity benefit also includes additional bonuses.||Money back policies also provide bonuses as per the policy terms.|
|Tax relief is provided for both policy the premium amount as well as the policy proceeds.||Tax relief is provided for both policy the premium amount as well as the policy proceeds.|
Which should you choose?
Endowment plans and money-back policies share several similarities. The only difference between these two types of products is the way the payouts are offered. Thus, money-back plans are best-suited to individuals who would like to receive regular returns from the insurance provider. On the other hand, endowment plans are ideal for those who would like to receive a lump sum benefit from the insurer at the completion of the policy tenure. The payouts provided by both types of policies can help policyholders meet key milestones in their lives.
In endowment policies, a policy becomes a paid-up policy if premiums are paid for at least three years and subsequent premiums are not paid. In this case, the policy will continue to remain active with the reduced sum assured amount (proportional to the premium paid) till the end of the maturity period. In the case of the death of the policyholder during the policy term, this reduced sum assured is paid. Upon maturity, the sum assured along with accrued benefits will be paid.
Since you have paid for four years, your policy would have become a paid-up policy by now. You may either choose to keep it active at the reduced sum assured amount or surrender it. If you are surrendering the policy, surrender charges will be applicable to the policy. Most insurers provide a table for the exact surrender value of a policy. You may calculate your policy’s surrender value based on this. In the early years of coverage, the surrender value tends to be extremely low. You need to take this into consideration while deciding on the surrender.
If you are not sure about the surrender value, you may contact the company directly and enquire about the value. The charges may vary from company to company and plan to plan. Hence, it is kind of difficult to provide the exact surrender charges that may be applicable to your policy. If you are not in immediate need of money, you may also choose to keep the policy till the maturity date and get the maturity amount.
You don’t have to worry even if your insurer has closed the plan you have already subscribed. Closure of a plan means that the company will not enrol any new customers under the plan. Existing customers will be protected as per the policy agreement. You may continue to pay regular premiums as per the plan and get returns as mentioned in the policy document.
Once the plan matures, the company is bound to honour the insurance agreement as per the terms and conditions mentioned in the policy document. If you are still worried, you may contact the company directly and ask them to provide clarification about your policy. The company’s customer service department will provide you with further clarifications regarding the policy.
It is best to buy an endowment policy as soon as possible as it provides the double advantage of risk protection as well as savings.
Yes, certain bonuses such as the simple reversionary bonus and interim bonus are payable for participating endowment policies. The bonus will be declared by the insurer and added to the maturity benefit amount.
Yes, the maturity benefit and the death benefit are guaranteed under the policy. The bonuses, however, are not guaranteed.
If you’re looking to buy a financial product that acts as a savings tool, aids in growing your wealth and assured financial protection of your loved ones, you should choose an endowment policy.
Yes, certain life insurance companies offer insurance plans that help achieve a specific goal such as amassing wealth for one’s wedding, education, retirement, etc.
The major difference between the two life insurance plan types is that the term insurance policy does not come with a maturity benefit whereas the endowment policy does. A term insurance policy only provides a death benefit.
A whole life policy has a policy term equal to a hundred years i.e. the maturity benefit will be paid to the policyholder if he/she survives up to the age of 100 years. However, in the case of endowment plans, the policy terms are much shorter. A few whole life policies offer periodic payments as survival benefit.
Unit-linked Insurance Plans (ULIPs) are types of plans that are market-linked and provide returns that depend on the market conditions. Hence, the returns are not guaranteed. In the case of endowment policies, however, the returns are guaranteed.
The returns provided under an endowment policy are based on the performance of the funds, bonds, or other investment methods to which the policy is associated. In the case of a money-back policy, a fixed percentage of the sum insured is provided as returns to the policyholder.
While a part of the premium is used to offer life coverage, the rest is invested in investment platforms to help grow the money invested.
Insurance companies offer a number of riders which policy buyers can choose to purchase along with their base policy. The riders that are most commonly offered are the Waiver of Premium Rider, Accidental Death and Disability Benefit Rider, Term Rider, Accidental Death Benefit Rider, Critical Illness Rider, etc. However, the total number of riders that are offered will vary from plan to plan and insurer to insurer. Thus, when purchasing a policy, make sure to keep an eye out for riders offered by the insurance provider.
A few benefits of endowment policies are listed below:
While the number of documents that are required will vary from one insurance firm to another, the basic documents that you will need to submit in most cases are:
Yes, most endowment plans can be surrendered after the policy has acquired a surrender value. Upon surrendering your policy, you will be eligible to receive the guaranteed surrender value or the special surrender value, based on whichever is the higher of the two.
Certain insurers give policyholders the option to enhance their sum assured during the policy tenure or during important stages of their lives, such as the birth of a child, legal adoption, etc. However, you will need to check if your policy comes with this option at the time of purchasing it.
A paid up policy is one in which the premiums are paid continuously for at least three years and the subsequent premiums are not paid. Here, the policy continues to remain active at the revised sum assured value and accrues interests till the end of the policy term. If the policyholder dies before the end of the policy term, this revised sum assured amount will be paid to his/her dependents. If the policyholder outlives the policy term, this accumulated maturity amount will be paid by the company.
The option to avail a loan against your policy will be based on the policy terms and conditions. However, in most cases, if this option is provided to you, you will be able to avail it after the policy has acquired a cash value.In most cases, you can take loans only after the policy has acquired a surrender value after three years. Even then, the loan amount available will usually be within the surrender value acquired by the policy.
Most insurance policies come with a 15-day free-look period, during which time policyholders can return the policy if they find the terms and conditions of the policy to be unsatisfactory. Upon returning the policy, the insurance provider will return the premium paid by the policyholder after deducting a nominal charge.
Policyholders are expected to pay the due premiums as per the premium payment schedule. If the policy has lapsed due to non-payment of premiums, you can choose to revive the policy within 2 or 3 years (as specified in the policy document) from the date of lapse. A lapsed policy can be revived by paying all due premiums for the lapsed period to the insurer. The insurer might also require you to pay an additional interest and submit a certificate of good health.
In most cases, premiums can be paid through both online and offline channels. Thus, you can either pay it via the insurer’s official website (if this option is provided) or pay it at the cash counter of the nearest branch of the insurer.
Insurance providers may not offer all insurance plans online. Thus, you will need to visit the insurer’s website and check if the policy that you wish to purchase is also offered online. You can also choose to purchase certain life insurance plans through trusted third-party insurance websites.
A. Yes, you can. However, insurers may have a cap on how many times you can change your premium payment frequency.You may contact the insurer’s customer service department if you wish to enquire about this facility. You may also visit the branch office of the insurer and submit a written application for this change.
A. You can buy an endowment policy in the name of your spouse, parents or children. You could be the one making the payment, but as long as the correct documents of the actual policyholder are provided to the insurance company, it is not a problem.
The rule of 72 is a simple method used to determine the approximate time it will take for an investment to double. According to the rule, we can determine the exact timeline of duplication by dividing 72 by the annual interest rate. For instance, it will take 7.2 years for one rupee to become two rupees at an interest rate of 10%. The calculation here is (72/10) fairly accurate. The rate of return generated by a fund is a key indicator for this estimate.
A. It depends on what kind of policy you are taking. For example, if you are taking a critical illness rider when you already have one of the listed critical illnesses that would be a problem. If you are a smoker and/or drinker, then the company is likely to charge a higher premium from you as the chances of you dying early or contracting a severe disease.
A. Each policy and insurer has their own guidelines on policy lapse and termination. However, in general, there will be a grace period of at least 15 days after the due date, within which you can pay the premium and keep the policy active. If you don’t pay the premium within the grace period, then the policy will lapse. The lapsed policy can be revived within 6 months by paying the pending premium amount and late payment fees.
A. Yes, You can have more than one nominee for your policy, and you can change the nominees whenever you want. Some insurers may have a limit on how many nominees one policy can have and how many times they can be changed.
Finance professional, Ketan Mehta after winning a long battle with the Life Insurance Corporation of India (LIC) in the Supreme Court has started a new company called the ACESCO Endowment Services which purchases life insurance policies and offers the customers a better deal on the surrender value than the one offered by the insurance companies.
In order to ensure that the insured does not treat their endowment policies as a short-term investment, the insurers offer low benefits in case the policyholder decides to surrender the policy in a premature manner. Though the surrender benefits are a part of the maturity benefit, lot of customers surrender their policy in order to raise funds. In the previous fiscal year, LIC paid Rs.45.237 crore which was 27% of the total payout as surrender benefits to those who surrendered their policies.
Mehta sees an opportunity in this as there are investors who are willing to wait for the policy to be matured provided the plan assures them of a guaranteed return. The insurance laws help in providing for life insurance schemes to be assigned to a third party for consideration. Due to the presence of liquid-seeking investors and policyholders, it has become possible to trade life insurance policies in other markets.
According to Mehta, creating a market for such life insurance schemes will be beneficial for the investors and policyholders as it will allow them to make more money as compared to the amount paid by the insurance company as a surrender value. ACESCO will continue to provide the benefit of a life cover to the policyholder which will help both the insured and the insurance company. The insurance company will continue to receive the premiums until the policy is matured and will see a significant decrease in the number of policies that get lapsed every year. The insured will continue to reap the benefits of a life insurance policy.
This is Mehta’s second attempt at creating a market for life insurance policy trading, the first attempt being the Insure Policy Plus Service (IPPS) set up almost a decade ago. IPPS looked to purchase the life cover from those who wanted to surrender their policies, but their attempt took a hit as LIc intervened and refused to assign such schemes. The tussle between Mehta and LIC was taken to the high court where the ruling was in the favour of the former. LIC appealed in the Supreme Court but were unsuccessful.
ACESCO which has altered their business model slightly will take help of Amicorp Trustees. The return for the investor will not exceed more than 10% and the benefits of the scheme will go directly to the beneficiary of the scheme.
14 September 2018