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Endowment Policy

An endowment policy is a life insurance policy that not only gives a sum assured in case of the policyholder’s death, but also gives a higher amount on maturity of the policy. The endowment policy allows you to protect your family in case of your death as well as allows you to save more for your family in case you live longer than the policy tenure. A part of the premium paid for the endowment scheme is invested in bonds, shares, funds, or other investment methods. This allows your savings to yield more profit over the years. So an endowment policy is both an investment plan as well as an insurance plan.

Why do you need an Endowment Policy?

A pure life policy such as a term insurance plan is useful only if you die an untimely death while the policy is active. While that is very useful to your family considering how unexpected life is, 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, a child’s wedding, medical procedures, taking care of retirement income, buying a house, etc.

Best Endowment Plans Available in India:

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
  • LIC New Endowment Plan: This plan gives death and maturity benefits, as well as reversionary and extra bonuses. You can also add accidental death and disability benefit rider to this plan. The premium amount is as low as Rs.773 per month.
  • Kotak Classic Endowment Policy: This is a long-term protection-plus-savings plan that gives yearly bonuses apart from maturity/death benefits. Several riders can be added to the policy for optimum coverage. The minimum premium amount is Rs.7,000.
  • HDFC Life Sampoorn Samridhi Plus: This endowment plan allows you to have a whole life cover of up to 100 years, and offers yearly and other bonuses. You can add Critical Illness Plus rider to the policy. Premium amounts start from Rs.1,000 per month.
  • PNB MetLife Endowment Savings Plan Plus: This policy gives you bonuses as well as waiver of future premiums if you are diagnosed with a critical illness. The least premium you can pay to get this policy is Rs.1,500 per month.
  • Bajaj Allianz Save Assure Plan: This policy gives a maturity or death benefit of up to 115% of the sum assured. You can add several riders to the policy and enhance your protection levels. The premium amount is as low as Rs.800 per month.
  • Reliance Nippon Life Super Endowment Plan: With this policy, you can get guaranteed benefits at maturity, and also get discounts for choosing high sum assured. The minimum premium payment is Rs.1,000 per month.
  • SBI Life Smart Bachat: This is a limited premium plan that also comes in an iteration that has built-in accidental death and total disability benefit. Premium needs to be paid only for 5, 7, 10 or 15 years depending on the total policy period you choose. The premium amount is as low as Rs.450 per month.

How does it work?

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 and increase your protection, and get a higher death benefit or maturity benefit. If the policyholder passes away before the policy matures, then their nominee will receive the death benefits – sum assured plus guaranteed bonuses. If the policyholder is alive when the policy duration ends, then they can get the maturity benefits. So for a slightly higher premium amount, you get both life protection and profits at the end of the tenure.

Are Endowment Policies for you?

You should go for an endowment plan under the following circumstances:

  • Endowment policies are good for people who want more than a term life insurance but don’t want to invest large amounts in a growth plan or ULIP.
  • Ensure that you have a steady income before you buy an endowment plan because most policies need regular and long-term premium payment.
  • You should choose an endowment plan if you expect to need a lump sum amount at a later stage in life, but don’t have any other means of savings.
  • If you are a risk-averse individual, you should go for an endowment plan instead of ULIP or growth-oriented insurance plans.

Types of Endowment Policies:

The following types of endowment policies are available in the Indian market currently:

  • Participating plans: These are endowment plans in which the policyholder is a participant in the insurance company’s growth. This means that the company will give a small portion of its profits to the policyholder along with death or maturity benefit in the form of bonus. Max Life Life Gain Premier Savings Plan is an example of this kind of policy.
  • Non-participating plans: These are policies in which the policyholder does not get a part of the company’s profits. Non-participating schemes do not have certain type of bonuses in their maturity or death benefit. SUD Life Aashirwad is an example of this kind of endowment plan.
  • ULIPs: ULIPs are unit-linked insurance plans in which a part of the premium amount is invested in debt or equity products linked to the stock market. This gives higher returns just like mutual funds – the key difference being that ULIPs also have a life insurance component. The policyholder can select what funds they want their money to be invested in. Tata AIG Life Invest Assure II – Balanced Fund is a good example of a ULIP.
  • Whole life or full endowment policy: This kind of policy covers your entire life – up to 100 years – with a basic sum assured. Bonuses are added to the death or maturity benefits as and when your account makes profits. HDFC Life Sampoorn Samridhi Plus is a good example of this kind of policy.
  • Money-back plans: Money back endowment plans ensure that you get regular returns from your investment instead of a lump sum at the end of the policy period or at death. You may get money back every year, or every 5 years, during the last 5 years of your policy, or other options, depending on the terms of the policy.

Other than this, endowment policies can be differentiated based on payment of premiums as given below:

  • Regular Pay: Under this, you need to make premium payments regularly as long as the policy is active and the policyholder is alive. The frequency can be as chosen by you – every month, every three months, every six months or once a year.
  • Limited Pay: Here, you need to pay only for a specified number of years out of the total policy tenure. This could be 5 years, 7 years, 10 years or 15 years, depending on the insurer and the product.
  • Single Pay: When you need to make just one payment towards your plan, it is known as a Single Pay policy.

Features and Benefits of Endowment Policy:

  • Death as well as survival benefits: You get sum assured and bonuses both in case of the death of the policyholder before the policy matures and in case of the policyholder outliving the policy.
  • Higher returns: An endowment policy helps you not only to provide for your family in case of your untimely demise, but also to make higher savings for the future. Whether it is death benefit or survival benefit, the payout with an endowment policy can be much higher than that of a pure life policy.
  • Premium payment frequency: You can make regular, limited or single payments of premiums depending on the policy you choose. You can also choose to make payments in frequencies of monthly, quarterly, half-yearly or yearly.
  • Flexibility in coverage: You can add riders such as accidental death and total disability or critical illness, to the policy and increase your life cover. Some policies also give you premium payment waiver in case of critical illnesses or permanent disability.
  • Tax benefits: You get tax concession on both premium payments (under Section 80C) and the final death or maturity payouts (under Section 10(10D)).
  • Low risk: Endowment policies are safer than other types of investments such as ULIPs or mutual funds because the amount is not directly invested in the stock market or equity funds.

How to choose an Endowment Policy?

Before you select an endowment policy, consider the following:

  • You should have a steady and regular income. Endowment schemes are long-term commitments, so if you do not have a regular source of income, you may be in a situation in the future when you cannot pay premiums on time and the policy will lapse or get terminated.
  • You should have a disciplined approach to investment/financial payments. If you are the kind of person that forgets to make premium payments, then it might be difficult to maintain an endowment policy. This is actually applicable for any kind of investment or insurance that needs fixed, regular payments. Financial discipline is an absolute necessity unless you are making single payments.
  • Endowment policies are good for people who want to save but cannot spare huge amounts or pay attention to the market keenly. They are easier to manage than mutual funds and cheaper than ULIPs or growth insurance plans.
  • You should choose a plan according to your age, income, how much you can save in a month/year, and your future financial goals.
  • The older you are, the higher your premium and future needs might be.
  • Let your income and monthly savings decide how much premium you would be able to pay towards an endowment policy.
  • Make sure that you are choosing a plan that gives good returns and a sum assured plus bonuses that will cover your future needs. It would be ideal to choose a policy with a sum assured of at least 10 times your current annual income.

Eligibility criteria for Endowment Policy:

Each endowment policy by different insurers has different eligibility criteria. The common parameters are:

  • Minimum age at the time of buying a policy – which could be 0 years to 60 years;
  • Maximum age at the time of maturing of policy – which could be 18 years to 100 years; and
  • The ability to pay the premium for the chosen policy.

Many insurers might also need you to declare your existing illnesses.

Documents Required:

The most common documents that insurers ask applicants to produce are:

  • ID Proof: A valid photo identity card issued by the government or a company, such as Passport, PAN Card, Driving Licence, Aadhaar, Voter’s Identity Card, MNREGA Job Card, company ID card, etc.
  • Residence proof: Apart from the above ID cards that include your permanent address, you might be asked for rental agreement (if you’re staying in a rented house), latest utility bills, Property Tax or Municipal Tax receipt, bank account or Post Office savings account statement or passbook, and other documents issued by the government of India.
  • Age proof: Any government ID card or document, or a school leaving certificate that has your date of birth.
  • Income proof: Latest payslips or certificate of employment.
  • Your latest photographs.

Endowment Policy Premium Calculator:

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 –

Mode Premium
Monthly Rs.1,100
Quarterly Rs.3,299
Half-yearly Rs.6,530
Yearly Rs.12,925

Riders for Endowment Policy:

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:

  • Accidental death benefit: This rider will add an extra sum to the death benefit payout if the policyholder dies in an accident whether inside the house or outside.
  • Total permanent disability benefit: If the policyholder becomes permanently disabled and is unable to earn an income, then this rider will ensure that you get the sum assured and bonuses over a period of a few years in instalments. This will help you have a regular income for some time even if you are unable to go to work anymore.
  • Critical illness benefit: This rider will cover severe diseases such as cancer, serious heart ailments, kidney failure, major organ transplant, stroke, paralysis, multiple sclerosis, Alzheimer’s disease, etc. You will get a lump sum when you contract one of these illnesses to help you with the treatments. Some insurers also waive off your future premiums in case you are diagnosed with a critical illness.
  • Premium waiver benefit: This rider can be added to get a waiver of premium payment in case of a severe disease or temporary/permanent disability. You will not have to pay the future premiums, and at the same time you won’t lose any benefits of the policy.

Endowment Policy Bonus Rates:

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
Endowment-Type Plans Less than 11 years 34 34 34
  11 to 15 years 38 38 38
  16 to 20 years 42 42 42
  More than 20 years 48 48 48
New Endowment Plan 12 to 15 years 38 38 38
  16 to 20 years 42 42 42
  More than 20 years 48 48 48
Single Premium Endowment Plan 10 to 15 years 40 41 41
  16 to 20 years 45 46 46
  More than 20 years 50 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.

Additional Bonus on Endowment Policy:

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:

  • Simple Reversionary Bonus: This is a bonus that is accumulated in the policyholder’s account every year until maturity or death. This bonus is calculated on a yearly basis and is based on the sum assured. It is not compounded yearly and merely adds up to a final lump sum. For example, if you are receiving a simple reversionary bonus of Rs.40 per Rs.1,000, and your sum assured is Rs.2 lakh, then the total bonus of this kind at the end of policy or death would be Rs.8,000.
  • Compound Reversionary Bonus: This bonus is a compounded amount based on all the bonuses that you receive throughout the policy period. Not all plans offer a compound reversionary bonus.
  • Interim Bonus: This is an amount added to the policy account in case the policyholder dies or the policy matures before the annual bonus is declared. Interim bonus may be lower than the annual bonus, and is paid out to ensure that the insured person does not lose any money merited by them.
  • Terminal Bonus: This is a one-time amount added to the policy at the end of its tenure or at the time of disbursing the death benefit.
  • Additional bonus: This is paid in participating policies which include a portion of the insurer’s profits for the year. This additional bonus is a small percentage of the total profits that an insurer makes in a given year.

Claims Process :

To make a claim on an endowment policy, you need to follow the below-listed steps:

  1. Fill in the Claims Form. This will be available either on the insurer’s website, or with your insurance agent. The form has to be duly filled and submitted to the insurer via email, fax, snail mail or through direct submission at the company’s office.
  2. Attach all the documents that would support your claim. For example, if it is a death benefit claim, you need to provide the death certificate of the policyholder, and identity and address proof of the nominee.
  3. Once your request is received at the insurance company’s office, you will get a confirmation from the company.
  4. The Claims Cell of the insurance company will review your claim and verify the documents. If any further documents or investigation is required, an executive will approach the policyholder/nominee.
  5. If your or your nominee’s mobile number is registered with the insurer then you will receive regular updates on the status of your claim.
  6. If your claim is approved, then the money will be disbursed electronically through bank transfer, or via cheque. Each insurer will have its own timeline on claim settlement.
  7. If your claim is rejected, the insurer will send you a rejection letter along with reason for the denial.

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.

Endowment Policy vs. Mutual Funds:

Some of the key differences between endowment policies and mutual funds are:

  • Endowment policies have a life insurance cover but mutual funds don’t.
  • Endowment policies don’t always invest in equity or debt vehicles, while mutual funds are market-linked and invest in either equity or debt funds.
  • Endowment policies give lower returns than mutual funds.
  • The risk level in endowment policies is very low compared to the risk involved in mutual funds.
  • The administrative costs associated with endowment plans are lower than those for mutual funds.
  • There are tax deductions for both premium payments and death or maturity benefits of endowment policies, while mutual funds are tax-deductible only for the investment amount. Capital gains tax is applicable on mutual fund returns.

Endowment Policy FAQs:

  1. Can I switch my premium payment frequency from monthly to quarterly or between other options?

    A. Yes, you can. However, insurers may have a cap on how many times you can change your premium payment frequency.

  2. Can I buy an endowment policy for someone else?

    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 is provided to the insurance company, it is not a problem.

  3. Does my health condition matter while taking an endowment policy?

    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.

  4. If I don’t pay premium once or twice, what will happen to my policy?

    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.

  5. Can I appoint more than one nominee for my policy? Can I change these nominees later on?

    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.