Endowment Policy

Endowment Plans not only offer you protection but also helps you to save your money and help it grow over a period of time. You get a lump-sum amount called the maturity benefit after the policy term comes to an end.

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.

Why do you need an Endowment Policy?

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.

Best Endowment Plans Available in India:

Some of the best endowment policies available in India are listed below:

• LIC New Endowment Plan: The policyholder can also add the Accidental Death and Disability benefit rider to the plan.

• 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 for the regular and limited pay options.
• 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 along with death benefit and maturity benefit. Also, a waiver of future premiums if you are diagnosed with a critical illness. The least premium you can pay to get this policy ranges between Rs.18,000 and Rs.48,000 per annum.
• 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 a high sum assured amount.
• 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 the person chooses. The premium amount is as low as Rs.450 per month.
*Note: This list is by no means exhaustive.

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 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.

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 wish to save money for a specific milestone in life such as children’s marriage, children’s higher education, buying a home, retirement planning, etc.
• The corpus generated by an endowment plan may not be sufficient to meet all the future requirements of a family. Hence, it can be used mainly to supplement your term insurance cover.
• The returns generated by an endowment policy are moderate and can be beneficial only in the long run. Hence, it is essential to invest for a long period to build a large corpus.
• 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 pay any additional bonuses to the policyholder along with the maturity or death benefit. SUD Life Aashirwad is an example of this kind of endowment plan.
• 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:

Some of the notable features and benefits of endowment policies are listed as follows:

• 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.

 

Factors to Consider Before you buy 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 –

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.
• Term assurance rider: Most of the top insurers in the market offer a term assurance rider along with an endowment policy. If the policyholder dies unexpectedly during the policy term, this add-on cover provides lump sum benefit to policyholders similar to a regular term insurance cover.

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:

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/are 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	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 vs. Money-Back Policy

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.