All You Need to Know about Endowment Life Insurance Policies

An endowment policy is a variant of a life insurance policy that offers coverage to the policyholder in case of any eventuality. It is also one of the best investment plans to build a corpus over a period of time that is paid in lump sum by the insurer on surviving the policy term.

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You can also invest in an endowment plan to avail the maturity amount and use it to fund your future financial needs such as property, children's education, children's marriage, and your retirement.

What is an Endowment Policy?

Endowment plans are life insurance policies that ensure guaranteed sum assured to the policyholder along with other benefits upon the maturity of the policy term. Death benefit is also provided to the nominee/beneficiary/dependants benefits in case of the demise of the insured person or the policyholder. Simply put, an endowment policy is like an insurance instrument offering additional saving/investment advantage to the policyholder.

Basically, an endowment plan offers two major benefits:

Endowment Policy Death Benefits- The endowment policy nominees are paid the sum assured by the insurance company in case of the death of the insured during the endowment policy term.
Endowment Policy Maturity Benefits- The policyholder is entitled to receive the maturity from the insurer upon surviving the endowment policy term.

How Does an Endowment Plan Work?

There are two clauses in endowment plans i.e. with profit and without profit.

An endowment policy with profits implies benefits to the nominees and terminal bonuses that in addition to the sum insured amount sum assured upon maturity of the policy and therefore, offer additional benefits.

Whereas, a non-profit endowment policy does not offer such benefits and is more like a traditional life insurance policy.

The main feature of an endowment policy is lump-sum payouts of the sum assured. The insured person receives the sum insured amount in lumpsum at the end of the policy term and has the option to invest these funds to meet the future financial goals or financial requirements. One can purchase endowment plans as per their requirement as there are no rigid rules on the selection of policy term.

Who Should Buy an Endowment Policy?

If you think you spend relentlessly and find it difficult to save for your future needs, then an endowment policy would make one of the best investment plans. People with a steady source of income who want to save a lump sum amount after a certain point of time can consider buying an endowment policy. It is a disciplined investment tool that helps you build emergency funds for future financial emergencies.

Businessmen, salaried people, other professionals like lawyers, doctors can also consider endowment policies to ensure long-term financial security.

For risk aversed individuals also endowment policies make one of the best investment plans. And if you are only interested in the insurance quotient and not the saving part, then you can stick to a term insurance plan.

Why Should You Buy an Endowment Policy?

You can invest in an endowment policy as it makes sense to invest in some investment plans that offer assured returns. You can buy an endowment policy if you want to protect your loved ones against financial turmoil after your untimely demise or to build a corpus to meet long-term goals without any financial crunch. It is ideal for goal-based savings, and to fulfill your investment objectives over a period of time.

However, make sure that you have a steady source of income to be able to pay the premium. And the goal should be long-term to be able to benefit from the investment. And if you do not have a regular source of income then you can also go for single pay endowment plans or Flexi pay endowment policy.

Things to Consider Before Buying Endowment Policies?

When it comes to investing the earlier you start the better it is. You get better returns if you have a long investment horizon. It helps in bringing financial discipline and also build a corpus in the stipulated time frame. Here are some of the factors that you need to consider:

Review Flexibility Options: When buying an endowment policy check if the insurer provides the flexibility to choose the endowment plan type. For instance, salaried individuals can opt fr a regular plan. Whereas people with an irregular source of income can go for a single premium payment endowment policy or a limited premium policy.
Select the Endowment Policy Rider Benefits: Check if the insurer offers the rider options such as marriage/education/double endowment policy to name a few. The rider benefits vary from one insurer to another. You can buy endowment riders as per your needs and requirements. However, buying endowment policy riders would mean chipping in more premium than a basic endowment insurance policy.
Guaranteed and Non-Guaranteed Returns: Endowment policies are not only low-risk insurance products but they also are one of the best investment plans for saving along with financial security the loved ones of the policyholder. In addition to that, some of the insurance policies also provide guaranteed and non-guaranteed returns. Fixed returns are called as guaranteed returns that are paid on maturity or death, whatever is applicable. additions remain fixed and are payable on death or maturity (as applicable).
Bonuses: An insurance company earns profits on the basis of the value of its assets and liabilities. The insurer declares bonuses for the year on the basis of the performance of the company. And when the insurance company makes profits from the investments then they distribute it to the customers at the end of the fiscal year.

In a Nutshell

So, if you are looking to bring the investment discipline then you can invest in Endowment plans to save for your future financial needs. Moreover, it provides life risk cover and compensates the dependant members in case something untoward happens to the insured breadwinner of the family. Sometimes the returns might be lower, but the sum assured is guaranteed on the maturity of the policy term. The policy also provides tax benefits, but that is subjected to certain terms and conditions.

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Past 10 Years' annualised returns as on 01-04-2025

^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.

Tax benefit is subject to changes in tax laws. Standard T&C Apply
++Source - Google Review Rating available on:- http://bit.ly/3J20bXZ

^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

#The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CARG 8%; ₹50,45,591 @ CAGR 4%

¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.

**Returns are based on past 10 years’ fund performance data (Fund Data Source: Value Research).

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