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What Is an Endowment Policy? Here’s A Primer

Aug 30, 2018 | 2 years ago | Read Time: 3 minutes | By iKnowledge Team

The number of people in India with a life or health insurance plan is dismally low. Many of us even believe that a life insurance is either a waste of money or some sort of scam. But consider how much our lives have changed in the last decade: while we have more resources at our disposal, it has made our lives stress-prone and vulnerable to a plethora of lifestyle diseases. In this situation, not having a life insurance can prove damaging to the emotional and financial health of your family.

What are the types of life insurances?

There are many types of life covers but most of them come under two broad categories: term insurance and endowment policy. Term insurances, as the name suggests, offer coverage for a set period or term. Endowment policies, on the other hand, come with a specified maturity period. Both  these plans are suited to individuals with differing lifestyles. Read on to find out if an endowment plan is the right fit for you.

What are endowment plans?

Simply put, an endowment plan is a life insurance contract that is designed to pay a lump sum after some specified period of time on death. However, if the policy term ends whilst you are in good health, the entire sum is given to you. You can use this sum however you want to, whether it is for your children’s education, your retirement or buying a house.

The important takeaway here is the saving component. An endowment policy acts as a saving instrument whereby your premiums are collated and returned to the policyholder (either you or your family) at the end of the insurance term. Therefore, it has the dual benefit of being a saving instrument and a life insurance cover.

An endowment plan can also be visualised as an investment instrument that you buy from a life insurance company. It gives you a return in the future without any of the accompanying interest rate risks or investment risks. A medical exam, that is necessary in most life insurances, can be foregone in an endowment plan.

Is an endowment plan right for me?

Taking up an endowment policy is recommended if you have a constant source of income and require some sort of lump sum amount sometime in the future, for either your children or yourself. So, if you are a salaried professional, a businessman, a doctor or a lawyer, an endowment plan may be the answer to your long-term financial security needs.

Endowment Plans

It is also a highly sought-after plan for those with risk-averse appetites. This means that while these plans may have a lower return that high-risk investments, they are stable and provide an assured sum at the end of the maturity period. In this sense, endowment plans are designed for the common man. 

The key benefits of this type of cover is goal-oriented savings, financial protection of your loved ones, tax benefits under Section 80D of the Income Tax Act as well as the option of taking out a loan against your policy in the case a financial emergency should befall you.

What to check when buying an endowment policy?

Like every life insurance plan, there are many endowment plans available in the market today. Find a policy that will fit your lifestyle and spending habits.

The first thing to look at will ideally be the premium on each plan. Since endowment plans have slightly higher premiums than term plans, not choosing wisely might cost you more. The next thing to look out for is the reputation and track record of the company that is insuring you.

Generally, companies like Aegon Life who have been in this industry for over a century provide extremely secure options designed to optimise your finances. Their Premier Endowment Insurance Plan has been a very successful policy as it provides a wide ranged coverage at affordable premiums along with additional tax benefits.

Advt. no.: IA/Jul 2018/4232


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