In a world where financial security and long-term planning are of utmost importance, endowment plans have emerged as a compelling option for those seeking a unique blend of insurance coverage and investment benefits.  

Endowment plans offer the opportunity to not only protect your loved ones in the event of unfortunate circumstances but also build a solid financial foundation that can unlock a multitude of possibilities.  

Let's delve into the intricacies of endowment plans, exploring their features, advantages, and why they have become increasingly popular in recent years. Whether you're a seasoned investor or just beginning your financial journey, understanding the power of endowment plans can empower you to make informed decisions and take control of your financial future.

An endowment plan is a type of life insurance policy that provides both a death benefit and a savings component. It is designed to provide financial protection to the policyholder and their beneficiaries in the event of the insured person's death, and it also offers a savings or investment feature. 

Endowment plans are popular because they provide life insurance protection, savings, and the potential for investment growth. They are often considered a long-term financial planning tool, as the policy's maturity benefit can be used to meet specific financial goals like paying for a child's education, purchasing a home, or supplementing retirement income.

1. Unit Linked Endowment Plans

Especially suited for people who are looking to gain a high return on investment and have a high-risk appetite. Under this plan, your premium is partially invested in insurance coverage, and partially in equity, debt, or hybrid funds. You can choose the funds depending on your financial goals and risk appetite. The return on these plans depends majorly on market performance. 

2. Full Endowment Plans

Also known as With-Profit Endowment Plans, they provide a guaranteed sum assured that is paid to the nominee in case of an unfortunate demise of the policyholder. 

However, if the policyholder survives the policy term, a maturity benefit is paid, which includes the guaranteed sum assured and the non-guaranteed bonuses, if any. 

3. Non-Profit Endowment Plans

They are almost similar to Full Endowment Plans. They provide a guaranteed sum assured but no bonuses. However, they provide guaranteed policy additions along with the guaranteed sum assured as a maturity benefit.

4. Low-Cost Endowment Plans

These plans offer a guaranteed lump sum on maturity or in case of the policyholder's death. There are no bonuses or any other additions to the maturity benefit. 

Low- Cost Endowment Plans are usually chosen as savings options to pay off a specific mortgage or to support some other milestone in life. While it accumulates the savings, it also provides a safety net to the family in case of the policyholder's unforeseen death. 

Below are the key features of an Endowment Plan:

1. Death Benefit Along With Survival Benefit

The sum assured in an Endowment Plan is payable as a Death Benefit to the nominee in the case of the policyholder's unfortunate demise. However, if the policyholder survives the policy term, the sum assured is paid as a survival benefit to them. 

2. Bonus Payable

Under Endowment Plans, the bonus for the entire term is payable on the date of maturity or in the event of the policyholder's death, whichever is earlier. 

3. Flexible-Premium Payment Options

The policyholder can choose regular, single, or limited premium payment options. They can also pay their premium yearly, monthly, half-yearly or quarterly. The premiums stop on the death or completion of the policy term. 

4. Low Risk

Traditional Endowment Policies are a much safer option than ULIPs or Mutual Funds since the amount is not directly invested in equity funds or the stock market. 

5. Investment Tool

Given the low-risk nature of these plans, they are a good investment option. They provide financial protection to the family in case of the policyholder's demise and help build a corpus for the future. Given the guaranteed sum assured and bonus additions, their returns are also good compared to many other insurance plans. 

Endowment Plans provide numerous benefits, as listed below:

1. Financial Coverage

Endowment Plans provide financial coverage during the policy term. In case of the policyholder's unfortunate death during the policy's term, the nominee receives a Death Benefit that includes a guaranteed sum assured and a portion of non-guaranteed bonuses.

2. Maturity Value

Endowment Plans serve the dual purpose of providing life coverage and a savings option. They include various bonuses in the form of guaranteed yearly additions, interim bonuses, reversionary bonuses etc. On maturity of the policy, if the policyholder has survived the policy term, they get the Maturity Value, which is a sizeable lump sum payout including the guaranteed sum assured and the non-guaranteed bonus amount. 

3. It Can Be Used as an Investment Tool

Endowment Plans are relatively safer as compared to other types of policies. They provide a sizable amount of Survival Benefits and Death Benefits in case of the policyholder's unfortunate demise. 

All these features make them a perfect choice for an investment option. They can be used as goal-based savings for significant milestones in life, thus enabling long-term savings. 

4. Rider Benefits

Endowment Plans provide the option of adding riders to the main policy, thus enhancing the base plan coverage and benefits. Some riders available with endowment plans are Accidental Death Rider, Critical Illness Rider, Terminal Illness Rider, and Income Benefit Rider. 

An Endowment Plan pays Death Benefit or the Maturity Benefit as per the situation. Let's consider the two cases:

1. If the Policyholder Dies During the Policy Term

In the case of the policyholder's unfortunate death during the policy's term, the nominee receives a Death Benefit, a combination of guaranteed sum assured as well as non-guaranteed bonuses as per the policy and as per the policy term completed. 

2. If the Policyholder Survives the Policy Term

When a policyholder survives the policy term, they receive maturity benefits. Maturity benefit includes guaranteed Sum Assured and other bonuses like guaranteed yearly additions, loyalty additions, etc. 

Insurance is a basic necessity for anyone earning and having any dependents on their income. Since Endowment Plans have the added advantage of a savings component, they are a perfect choice for people looking for financial coverage and investment. 

Buy an Endowment Plan if:

• You are looking for a low-risk investment plan with the added benefit of financial coverage. 
• You have some non-negotiable long-term goals for which you wish to build a lump sum maturity. 
• You have a regular source of income that you want to invest in small amounts in a disciplined manner for building a corpus over the long term. 
• You have dependents who you wish to secure financially.
• You are a risk-averse individual who does not wish to gain equity returns with added risk but would prefer to have lower guaranteed returns. 
• You are looking for tax benefits on your income and then reap a tax-free maturity from the investment. 

Here is your checklist for buying an Endowment Plan:

1. The Key Lies In Planning Early

Leave procrastination on the table and buy your insurance when you are young. This would provide you with numerous benefits. One significant advantage is that you get much lower premiums compared to the later ages. Another benefit is the long tenure you can choose and build a large corpus as a maturity benefit. 

2. Know Your Requirements

Doing thorough research about your requirements is a very crucial step. Know about your life stage, your income, your family's financial needs, premium paying capability and risk appetite. Take a decision based on the above factors. 

3. Check About the Premium Flexibility Options

If you are a salaried individual, you would prefer regular payments. However, if you are a business person, you would not mind single premium payments wherein you can invest your lump sum amount. There are also options to choose payment frequency like monthly, quarterly, annually, etc., that you should review as per your preference.

4. Bonus and Other Additions

Bonuses are provided based on the performance of the insurance company and are not guaranteed. However, some guaranteed additions are also added to the policy at the end of every year, given that the premiums are duly paid. Hence, they ensure you benefit if you continue with the policy. 

5. Know About Your Insurance Provider

Check about your insurance provider. The most crucial parameter you must check is the Claims Settlement Ratio of the insurer. This ratio indicates the percentage of claims settled by the company against the total number of claims it received. Hence, this number is a parameter to judge the viability and trust of the insurance company. The higher the company's CSR, the better your chances for your claim settlement. 

Also, check the insurance buying and claim process. Choose a company where the paperwork is less, and the process is quick and hassle-free. 

A rider can be an extension to your base plan, with an additional premium that provides additional coverage under various situations.

The Significant Riders in Endowment Plans are listed below:

1. Accidental Death Benefit Rider

Accidental Death Benefit Rider provides extra coverage to the dependents in case of accidental death of the life assured. This is over and above the basic coverage the insurer already provides in the base plan.

In fatal accidents, the medical interventions that go into saving the victim's life hit the family's finances. In many cases, the victim eventually dies, and the family then deals with the personal loss in addition to this financial loss. 

To cover these scenarios, in cases where the life assured does not immediately pass away after an accident, the Accidental Death Benefit rider provides the sum assured to the nominee within 120-180 days from the date of the accident. Hence, Accidental Death Benefit is one of the most significant Riders that must be added to the basic insurance policy.

2. Critical Illness Rider

A Critical Illness Rider provides financial coverage in case the life assured is diagnosed with any critical illnesses as mentioned in their policy document. For example, cancer, heart ailments, and tumours are some critical illnesses. 

The Critical Illness Benefit is provided to the life insured to meet the treatment and household expenses in those times of need. It acts as an Income Replacement plan and ensures that neither the treatment of the policyholder nor the family's finances are hit because of the illness.

3. Accidental Total and Permanent Disability Benefit Rider

This rider takes care of the finances in case the life assured suffers an accidental partial or permanent disability and, thus, becomes unfit to carry on with any occupation.

For example, loss of both eyes and legs, both arms or one arm and a leg, can be classified as a permanent disability. Such kind of disabilities leaves a person incapable of leading a normal life where they can take up a job and earn for their family. In such cases, the policyholder is paid a specific portion of the Sum Assured regularly for a few years, which takes care of the finances for the most challenging years of the family.

4. Waiver of Premium Rider

This rider ensures that the policy stays active even when the policyholder cannot pay premiums due to physical disability.

With this rider, the premiums are waived, and the policy continues till maturity. On maturity, the benefits are paid to the nominee.

This rider can be availed in cases where:

• The life insured has been disabled for six months or more.

• When life insured is diagnosed with any of the critical life-threatening ailments.

5. Terminal Illness Rider

This rider ensures the Sum Assured is paid to the policyholder on the diagnosis of any terminal illness.

Terminal Illnesses are ailments with a high likelihood of death within six months. In these types of illnesses, in addition to the eventual personal loss of the family member, the finances are also hit badly during the treatment.

A Terminal Illness Rider provides much-needed financial freedom in those times of need to put finances in order, take care of medical support, or travel. This rider comes into effect only after the diagnosis and short life expectancy confirmation.

6. Income Benefit Rider

Life is full of uncertainties, but it's up to us to plan well for all those lemons that life might throw at us. When you buy insurance, you have taken an essential step towards securing your family's future. However, there is always scope for better planning.

Under usual circumstances, insurance pays off the death benefit as a lump sum in case of the policyholder's demise. But, with Income Benefit Rider, if the policyholder dies during the policy term, the family receives a certain monthly payout with which they can manage their finances better. It acts as a substitute for monthly income in the absence of the policyholder so that the family doesn't struggle to pay bills.