Simplifying Life Insurance in India
What is an Endowment Policy & How Does it Work?

In today's world, where financial security and careful planning are crucial, endowment plans stand out as a powerful option. They offer a unique combination of insurance protection and investment growth, making them an appealing choice for those who want to secure their loved ones' future while building a robust financial foundation.
Endowment plans provide peace of mind in case of unforeseen events and open doors to financial opportunities that can shape your future. Whether you're an experienced investor or just starting to explore your financial options, understanding how endowment plans work can help you make confident, informed decisions.
Table of Contents
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Endowment Plan Overview
The table below highlights the key features of the endowment plan, covering important aspects like sum assured, eligibility, premium options, and available riders.
What is an Endowment Plan?

What is an Endowment Plan?
- An endowment plan is a life insurance policy that combines a death benefit with a savings component. It offers financial protection for your loved ones while helping you build savings over time.
- With regular premiums, you gain both insurance coverage and a growing financial reserve. Upon maturity, you can use the savings for goals like education, buying a home, or retirement. These plans provide flexibility to meet your long-term financial needs.
How Does Endowment Plan Work?
An endowment plan is a type of life insurance policy that combines insurance protection with savings. It not only offers life cover but also helps you accumulate a lump sum amount over a specified period. Here’s how an endowment plan works:
Sum Assured
The endowment plan provides a sum assured, which is the amount paid to the policyholder at maturity or to their beneficiaries in case of the policyholder’s unfortunate death during the policy term.
Policy Term
The policy has a predefined term chosen by the policyholder when purchasing the plan. During this term, the policy remains active as long as the premiums are paid on time.
Premium Payments
Policyholders are required to make regular premium payments to keep the policy active. The premium depends on factors such as the sum assured, the policyholder's age, the policy term, and any additional riders opted for.
Maturity Benefit
If the policyholder survives the policy term, they will receive a maturity benefit, which includes the sum assured along with any bonuses declared by the insurance company.
Death Benefit
In the event of the policyholder’s death during the policy term, the nominee will receive the sum assured along with any applicable bonuses as a death benefit.
Financial Growth
Since endowment plans also act as a savings vehicle, they allow policyholders to build a financial corpus over time. The savings component grows throughout the policy term, ensuring both life cover and financial returns.
Rider Benefits
Policyholders can enhance their endowment plan by adding riders such as critical illness riders, accidental death benefit riders, or waiver of premium riders, offering additional protection by paying an extra premium.
Illustration of Endowment Plans
Ravi, a 40-year-old entrepreneur, wants to build a secure financial corpus for his children’s education and secure their future in case of any unforeseen events. He chooses an endowment plan with a sum assured of ₹50 lakhs and a policy term of 20 years. His premium payments are set annually, and he adds a critical illness rider for additional coverage.
Understand the Scenarios of Endowment Plans
Death During the Policy Term
Outlives the Policy Term
Types of Endowment Plans

Types of Endowment Plans
Explore the different endowment plans available in India, each tailored to meet various financial needs and preferences.
- Unit-Linked Endowment Plans (ULIPs): These plans combine insurance with investment in market-linked funds, such as equity, debt, or hybrid options. They offer the potential for high returns based on market performance, making them suitable for individuals with a higher risk tolerance. Note that returns are not guaranteed and vary with market conditions.
- Full Endowment Plans (With-Profit): These plans guarantee a sum assured that is paid to the nominee upon the policyholder's death. If the policyholder survives the term, they receive the sum assured plus any non-guaranteed bonuses. This type provides a blend of guaranteed returns and potential additional benefits.
- Non-Profit Endowment Plans: Like full endowment plans, these provide a guaranteed sum assured but do not include bonuses. They offer guaranteed policy additions as part of the maturity benefit, providing stability and predictability without the potential for additional non-guaranteed returns.
- Low-Cost Endowment Plans: These plans offer a guaranteed lump sum either on maturity or in the event of death but without bonuses. They are often chosen to meet specific financial goals, such as paying off a mortgage and providing a safety net for the policyholder's family.
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Key Features and Benefits of Endowment Plan
Here are the key features and benefits, demonstrating how they can contribute to your financial stability and security.
Guaranteed Returns with Life Cover
Endowment plans offer a guaranteed lump sum payout at the end of the policy term, ensuring financial security for your beneficiaries if you pass away and a substantial sum if you survive the term. This dual benefit provides both insurance protection and a financial reserve.
Flexibility and Liquidity
These plans allow you to access funds during emergencies by foreclosing the policy after the lock-in period. This flexibility helps you manage immediate financial needs while maintaining the policy’s value.
Tax Benefits
Premiums paid on endowment plans qualify for tax deductions under Section 80C, and the maturity amount is tax-free under Section 10(10D). This tax advantage reduces your overall tax burden and enhances the plan's financial benefits.
Low-Risk Investment
Endowment plans are designed as low-risk investment options, offering better returns than traditional savings accounts. The insurer manages the investments, ensuring stability and security for your funds.
Loan Facility
You can use your endowment policy as collateral to secure a loan, allowing you to access additional funds without jeopardizing your assets. This feature provides financial assistance while keeping your policy active.
Balanced Insurance and Investment
Endowment plans combine life insurance with investment benefits, ensuring that you or your beneficiaries receive financial benefits whether you survive the policy term or not. This balance makes them a comprehensive financial tool.
Long-Term Financial Planning
Endowment plans are ideal for meeting long-term financial goals such as education or retirement. They support future milestones with guaranteed payouts and accumulated bonuses, helping you plan for significant life events effectively.
Why Do You Need an Endowment Life Insurance?

Why Do You Need an Endowment Life Insurance?
While life insurance policies with just a death benefit are popular, many people are looking for policies that provide both insurance protection and a savings component. This is where an endowment life insurance plan comes in - it not only protects your loved ones in case of unfortunate events but also ensures you save for future financial goals.
Here are other major benefits that an endowment life insurance plan provides:
- Dual Benefit of Savings and Protection: An endowment plan offers life insurance coverage along with a savings component. This means your family will be financially secure in the event of your demise, but if you survive the policy term, you’ll receive a lump sum maturity benefit that can help you meet major financial goals.
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Some Relatable Real-Life Examples
Rajiv Sharma, Government Employee
Rajiv, 45, a senior government employee, is looking forward to retirement in the next two decades. However, he also wants to ensure that his wife is financially secure in case of his sudden demise.
Rajiv chose an endowment plan with a sum assured of ₹50 lakhs. Not only does it give his family protection in case something happens to him, but it also helps him systematically save for a comfortable retirement, thanks to the maturity benefits at the end of the policy term.
Neha Malhotra, Software Engineer
Neha, a 30-year-old software engineer, recently became a mother and wanted to secure her child's future while also building a financial corpus. She opted for an endowment plan with a sum assured of ₹30 lakhs, which gives her peace of mind knowing that in case of any unforeseen event, her family will be taken care of.
At the same time, if she outlives the policy term, she will receive a lump sum amount that can be used for her child's higher education or other major expenses.
Meera Kapoor, Small Business Owner
Meera, a 40-year-old small business owner, has big dreams for her children’s education and family’s future. She wanted a plan that offers both life insurance protection and savings. She opted for an endowment plan with a sum assured of ₹25 lakhs.
With this plan, Meera feels secure that her children will have a financial safety net if she’s not around, and if she survives the policy term, the savings she accumulates will help fund her children’s higher education.
Who Should Buy an Endowment Plan?
Endowment Plans are ideal for individuals seeking a combination of financial coverage and a disciplined approach to building savings. Consider buying an Endowment Plan if you wish to:

Seek a Low-risk Investment with Financial Coverage
Ideal for those who prefer stability over high-risk, high-reward investments, an endowment plan offers the security of guaranteed returns with life cover.

Have Specific Long-term Financial Goals
If you’re looking to build a lump sum for non-negotiable goals like education, marriage, or retirement, an endowment plan can help you achieve this with disciplined savings.

Have a Regular Income
These plans suit those who wish to invest small amounts regularly, ensuring a steady buildup of a corpus over time.

Secure your Dependents Financially
If you have dependents, this plan ensures their financial security with a guaranteed sum assured in case of your untimely demise.

Prefer Lower but Guaranteed Returns
Endowment plans provide lower but guaranteed returns without exposure to market risks for risk-averse individuals.
Eligibility Criteria for Buying Endowment Plan
While the requirements may differ slightly between insurers, here’s a general outline of the standard eligibility criteria for an endowment plan.
Documents Required for an Endowment Policy
When purchasing an endowment life insurance policy, the following documents must be ready to ensure a smooth application process.
Identity Proof
Address Proof
Age Proof
Income Proof
Photograph
Fully Filled Proposal/Application Form
Factors Affecting Endowment Policy Premiums

Factors Affecting Endowment Policy Premiums
The premium for an endowment policy is determined based on several key factors, which collectively influence the cost you will pay. Here’s how it works.
- Sum Assured: The amount you choose as the sum assured directly impacts the premium. Higher sums assured lead to higher premiums, representing the amount the insurer commits to paying out.
- Age of the Policyholder: Your age when purchasing the policy affects the premium. Generally, younger policyholders pay lower premiums than older individuals due to the lower risk associated with younger ages. This typically ranges from 18 to 65 years.
- Policy Term: The duration of the policy also affects the premium. Longer policy terms may result in higher premiums, as the insurer’s risk extends over a more extended period.
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Things to Consider When Buying an Endowment Plan

Things to Consider When Buying an Endowment Plan
When purchasing an Endowment Plan, making well-informed decisions is essential to ensure the policy aligns with your financial goals. Here's a checklist to guide you.
1. Plan Early for Maximum Benefits
Buying an insurance policy at a younger age typically results in lower premiums. It allows for a longer tenure, enabling you to build a substantial corpus when the policy matures.
2. Understand Your Financial Needs
Assess your life stage, income, family’s financial needs, premium-paying capacity, and risk tolerance. This will help you select a plan for your current and future financial goals.
3. Evaluate Premium Payment Options
Choose a premium payment frequency that suits your financial situation - whether it's regular payments for salaried individuals or a single lump sum payment for business owners. Options for monthly, quarterly, or annual payments should also be considered.
4. Review Bonuses and Guaranteed Additions
While bonuses depend on the insurance company's performance and aren't guaranteed, some policies offer guaranteed additions to your policy each year, provided premiums are paid on time. Understanding these can help you gauge the potential growth of your policy.
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What are the Riders Available for Endowment Plans?
Riders are optional add-ons to your base plan that, for an additional premium, offer extra coverage under various scenarios. Here are some of the significant riders available in endowment plans.
Accidental Death Benefit Rider
This rider offers extra coverage if the policyholder dies from an accident. It provides additional financial support to dependents beyond the base plan. If the policyholder survives an accident but later passes away, this rider ensures the nominee receives the sum assured within 120-180 days from the accident. It helps cover medical expenses and financial losses.
Critical Illness Rider
This rider provides financial support if the policyholder is diagnosed with severe illnesses like cancer or heart disease. It helps cover treatment costs and household expenses, serving as an income replacement to ensure that both treatment and family finances are protected during the illness.
Accidental Total and Permanent Disability Benefit Rider
This rider offers financial assistance if the policyholder suffers a partial or total permanent disability from an accident that prevents them from working. For instance, losing both eyes or legs qualifies as a permanent disability. The policyholder receives a portion of the sum assured regularly for a set period to support their family during difficult times.
Waiver of Premium Rider
This rider keeps the policy active if the policyholder cannot pay premiums due to physical disability. If the policyholder is disabled for six months or more or diagnosed with a critical illness, future premiums are waived. This ensures the policy remains valid until maturity and benefits are paid out as planned.
Terminal Illness Rider
This rider ensures the sum assured is paid to the policyholder if diagnosed with a terminal illness, where death is expected within six months. It provides financial support to manage treatment costs, support, and other needs during a challenging time.
Income Benefit Rider
This rider provides the family with a monthly income rather than a lump sum if the policyholder dies during the policy term. It helps replace the policyholder's income, making it easier for the family to manage daily expenses and avoid financial difficulties.
What is Cash Value in Endowment Policy?
How Does Cash Value Grow Over Time?
How Does Cash Value Grow Over Time?
- The growth of cash value in an endowment policy is driven by the investments made by the insurance company. These investments can include a mix of stocks, bonds, and other assets. The growth rate of your cash value depends on the performance of these investments, which can fluctuate with market conditions. Many policies also provide a guaranteed minimum interest rate to ensure steady growth.
- The longer you hold the policy, the more time the cash value has to grow. However, it's essential to consider that various factors, such as investment performance or early policy surrender, can impact this growth. Thus, it's essential to carefully evaluate these aspects when choosing an endowment life insurance policy.
- Overall, the cash value of an endowment policy can provide a valuable savings component, growing over time and contributing to your long-term financial planning.
Difference Between Endowment Plan And Term Plan
While endowment plans offer a combination of life insurance and savings, comparing them to term plans helps clarify which option better suits your financial goals and insurance needs.
Tax Benefits of Endowment Plans
Section 80C: Premium Payments
Section 80C: Premium Payments
- Deduction Limit: Premiums paid for endowment plans qualify for a tax deduction under Section 80C, up to a maximum limit of ₹1.5 lakh per financial year.
- Eligibility: To qualify for the deduction, the premium paid should not exceed 10% of the sum assured for policies issued on or after April 1, 2012. For policies issued before this date, the premium should not exceed 20% of the sum assured.
- Applicability: This deduction is available to individuals and Hindu Undivided Families (HUFs).
Section 80D: Health Riders

Section 80D: Health Riders
- Deduction for Health Riders: Premiums paid for health-related riders, such as critical illness or accidental death benefit riders, are eligible for a tax deduction under Section 80D.
- Deduction Limit: The deduction limit under Section 80D is up to ₹25,000 for individuals below 60 years and ₹50,000 for senior citizens. This is in addition to the limit under Section 80C.
Section 10(10D): Maturity Benefits

Section 10(10D): Maturity Benefits
- Tax Exemption: The maturity benefit, including the sum assured and bonuses, is fully exempt from tax under Section 10(10D).
- Conditions: The tax exemption is applicable if the premium paid does not exceed 10% of the sum assured for policies issued on or after April 1, 2012. For policies issued before this date, the premium should not exceed 20% of the sum assured.
- TDS: If the policy does not meet these criteria, a 5% tax deduction at source (TDS) may apply on the payout if it exceeds ₹1 lakh in a financial year.
Limitations of an Endowment Policy

Limitations of an Endowment Policy
While endowment plans offer a blend of insurance and savings, they might not be the perfect fit for everyone. Before you commit, it's essential to be aware of some potential drawbacks that could affect your financial goals. Understanding these limitations will help you make a more informed decision about whether an endowment plan aligns with your needs.
1. Lower Returns Compared to Market-Linked Investments
Endowment plans typically offer guaranteed returns, which are generally lower than those of market-linked investment options like mutual funds or stocks. If your goal is to maximise wealth creation, the conservative nature of endowment plans might not meet your expectations.
2. Higher Premium Costs
The premiums for endowment plans are usually higher than pure life insurance policies like term plans. This is because endowment plans combine insurance coverage with a savings component. For individuals seeking only life coverage, this additional cost may not be justified.
3. Limited Flexibility
Endowment plans often have rigid structures, with fixed premium payment schedules and fixed policy terms. If your financial situation changes, such as a need to reduce premiums or adjust the policy term, you may find the lack of flexibility challenging.
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FAQs about Endowment Plan
What are the tax benefits of endowment plans?
What are the additional bonuses with endowment plans?
The additional bonuses on Endowment Plans are offered as a certain percentage of the sum assured. These are majorly of two types:
- Guaranteed Yearly Additions
- Guaranteed Loyalty Additions
How many times can I change the nominee in my endowment plan?
The nominee is the person eligible to receive the Death Benefit in case the policyholder dies. They are usually the close ones and the ones directly affected by the policyholder's death.
It is a crucial decision to select your nominee and hence should be taken with a lot of thought.
What are the common exclusions under endowment plans?
Any claim originating from any of the below-mentioned situations comes under exclusions and is declined by the insurance company:
- Participation in any unlawful activity, including riots or civil disturbances.
- Participation in high-risk sports and adventurous activities.
- Being under the influence of drugs or alcohol.
- Self-harm or injury or an attempt to do so.
What is an endowment plan?
What is the endowment benefit?
Is it good to invest in an endowment plan?
What happens if I stop paying premiums?
Is the maturity amount guaranteed in an endowment life insurance policy?
What is an example of an endowment policy?
How does an endowment policy work?
What is the difference between ULIP and an endowment plan?
What is the age limit for an endowment policy?
Are endowment plans taxable?
Can I cash in my endowment policy?
What are the risks of an endowment?
How much income is needed for an endowment?
When should one start an endowment?
What is a marriage endowment plan?
What is a pure endowment policy?
What is a limited payment endowment plan?
What is an anticipated endowment assurance?
What is a 10 year endowment savings plan?
What is a guaranteed endowment plan?
What is a with profits endowment policy?
What is an education endowment plan?
What is a limited endowment plan?
What is a joint life endowment plan?
What is endowment mortgage insurance?
What is a retirement endowment plan?
What is an endowment assurance policy?
What is a double endowment policy?
What is a participating endowment policy?
What is a non-participating endowment plan?
Can an endowment life insurance policy in India be surrendered before maturity?
What are the disadvantages of an endowment policy?
What are the benefits of a traditional endowment plan?
How does the critical illness cover benefit the policyholder?
What is the main difference between an endowment plan and a term plan?
What happens when an endowment policy matures?
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