How does an  endowment plan work?

An endowment plan is a life insurance policy that offers the dual benefits of life protection and wealth creation.

Author:IndiaFirst Life | Date:25 May 2021 | Time:22:09:00

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From the moment you start earning a fixed income, friends, family members, and well-wishers have one piece of advice to give you—get insurance. Life insurance plans are a mainstay in any Indian's financial portfolio. Before you think of investing in riskier ventures, it is essential to ensure that your primary bases are covered with the proper life insurance variants.

Types of life insurance plans

Life insurance policies come in many variants; however, the two fundamental types of life insurance plans are traditional and unit-linked. Traditional policies offer guaranteed returns intimated to you at the time of buying the plan. ULIP or unit-linked insurance plan returns depend on the market performance of the funds chosen. An endowment policy is a type of traditional life insurance plan. With pure protection term life policies, you get life cover in return for periodic premium payments. In case of your death during the policy term, a term plan will pay your beneficiaries a substantial sum assured as a death benefit. However, if you survive the policy term, a traditional term plan offers no survival benefits. This is where an endowment policy parts way with term plans.

What is an endowment insurance plan?

Financial planning serves to isolate the areas in your financial life that require attention. Planning for an eventuality wherein you are no longer around is vital for the financial health of your loved ones. With the right life insurance plan, you can be rest assured that the sum assured from your life insurance plan will stand your family members in good stead in case of such an unfortunate event.

But what about right now? Right now, you have hopes and dreams for your life—a home to buy, a family to care for, holidays to plan, and dreams to realise. You need an endowment insurance plan to help you achieve your goals with complete peace of mind. An endowment plan is a life insurance policy that offers the dual benefits of life protection and wealth creation. With an endowment insurance policy, your life is covered by the insurance component of the plan. In case of your untimely demise, your loved ones stand to receive a substantial pay-out as death benefits. Upon surviving the policy term, an endowment plan goes one step further than other traditional insurance policies—the policyholder is provided survival benefits, accrued bonuses, if any, and the benefits of long-term capital growth. If you are looking at a savings-cum-insurance product that can help you create wealth while it covers your life, an endowment insurance plan is the right one for you. Some endowment plan variants are market-linked, too. Choose an endowment plan based on your risk appetite and future financial goals.

Should you buy an endowment plan?

An endowment insurance policy is perfect for those who want to buy insurance with an added advantage. Not only does an endowment policy teach you how to save money consistently and systematically, but it also provides you life cover. Whether or not you survive the policy term, an endowment plan has something to offer you and your family members as survival benefits, maturity benefits or death benefits. Once the policy attains maturity, the significant benefit amount can be used to meet financial goals such as paying for higher education, buying a home, or planning for your retirement. Besides your saved corpus, you also get the peace of mind of guaranteed returns and potential bonuses if announced by the insurer. Any person who wants more than just pure protection from their life insurance plan should opt for an endowment policy—a win-win insurance plan for all.

What does an endowment insurance plan offer?

There are many reasons behind the immense popularity of endowment insurance plans in India. The key features and benefits offered by endowment insurance plans make it a winner you can bank on.

Death and survival benefits

In case of the untimely demise of the policyholder, the insurer pays death benefits to the beneficiaries. If you outlive the endowment policy, you receive the sum assured as guaranteed maturity benefits. In either situation, your money will find its way back to you.

Better returns

With an endowment policy, you can work towards creating a corpus for the future which is not really the case in a pure protection plan.

Flexible cover

Even the most basic endowment insurance plans offer the dual benefits of life cover and corpus creation. By adding suitable riders to a basic endowment plan, you can customise it to fulfil your every need. Enhance the base endowment policy with riders that cover critical illnesses, accidental death, and disability. Such riders can be added for an additional premium amount.

Loyalty additions

The survival pay-out from an endowment insurance plan is often made sweeter with guaranteed additions, bonuses, and loyalty additions at the insurer's discretion. These additions inflate your guaranteed corpus, so you get the most out of the endowment insurance plan.

Tax benefits

Besides offering life protection and being a savings tool, an endowment insurance plan also provides tax benefits under Section 80C and 10(10D) under the prevailing tax norms.

A step-by-step guide to how an endowment insurance plan works:

Endowment policy purchase—

Buy an endowment policy by selecting the plan, sum assured, policy term, and premium-payment term.

Begin paying premiums

The premium amount to be paid depends on the base endowment plan costs, cost of riders, and other chosen parameters. You can choose to pay the premiums monthly, quarterly, half-yearly, or yearly for a typical endowment plan. Some endowment insurance plans offer single premium facilities, too.

Endowment plan additions

A participating endowment plan earns bonuses through the policy's tenure and at its maturity. Bonuses include the simple reversionary bonus and the terminal bonus if announced by the insurer. You may also earn loyalty additions for staying with the plan till maturity.

Death of the insured

If the life insured is lost during the term of the endowment insurance plan, the death benefit in the form of a fixed sum assured is paid to the beneficiaries listed in the policy. This death benefit includes the sum assured, any accrued bonuses, and other additions.

Endowment policy maturity

When the policyholder survives until the end of the policy term, the endowment plan has reached maturity. At this juncture, the policy ceases, and maturity benefits are paid to the policyholder. This maturity benefit includes the sum assured, accrued bonuses, and loyalty bonus (if announced).

With an endowment plan, not only are you saving and investing your money, but you are also creating a safety net for your family members in your absence. IndiaFirst Life Insurance understands the importance of your life and financial goals. IndiaFirst Life's endowment offerings include the IndiaFirst MahaJeevan Plan (participating, non-linked endowment plan with assured maturity benefits), IndiaFirst Life Long Guaranteed Income Plan (non-linked, non-participating, limited premium endowment insurance), and the IndiaFirst Life Mahajeevan Plus Plan (non-linked, participating, limited premium, money-back endowment insurance), amongst others.


IndiaFirst Life

Headquartered in Mumbai, IndiaFirst Life Insurance Company Limited (IndiaFirst Life), with a paid-up share capital of INR 663 crore, is one of the country's youngest life insurance companies. Our key differentiators are our simple, easy-to-understand products that are fairly-priced and efficiently serviced.We offer a diversified suite of over 46 need-based products & Riders (as of 31st March 2022) catering to varied customer segments, leveraging multiple distribution capabilities and augmenting various investment options. In all, propositions under the categories of Protection, Assured Savings, Wealth, Pension, Health and Group Funds for Employee Liabilities form a complete suite of offerings that help our customers prepare for the certainties of life. Our products are easy to understand and competitively priced with risk management being our core strength.

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