Everything about Endowment Plans you should know

What is an Endowment Plan?

Types of Endowment Plans

Features of an Endowment Plan

Benefits of Endowment Plan

How Does Endowment Plan Work?

Who Should Buy an Endowment Plan?

Things to Consider When Buying an Endowment Plan

Riders in Endowment Plan

Difference Between Endowment Plan And Term Plan

Point of Comparison

Endowment Plan

Term Plan

Definition

A type of insurance plan that provides life coverage along with a savings component.

Term Plan provides pure life cover for a specific duration of time. It usually does not have a savings component.

Purpose

Financial Coverage + Investment. You can invest in Endowment Plans when planning finances for some long-term goal.

Financial Coverage. Term Plans are financial coverage you provide to your family to protect them from financial distress in case of your unfortunate demise.

Coverage

From age 18-75 years, usually.

Usually, 18-75 but some term plans also allow coverage up to 99 years.

Maturity benefit

In case the policyholder survives the policy term, a maturity benefit is paid that includes some guaranteed sum assured and some non-guaranteed bonuses.

Since it’s a pure insurance plan, in case of survival of the policyholder, there is no maturity benefit paid. However, some term plans provide the option of return of premiums on maturity.

Pricing

Since it involves a savings component, its premium is higher than the Term Plan.

For a very affordable premium, it provides a large amount of coverage.

Payout

Endowment Plans provide both Death Benefit and Maturity Benefit.

Term Plans provide only Death Benefit.

Loan Eligibility

You can use your Endowment Plan as collateral and avail of a loan against it once it acquires the required surrender value.

Loan Facility is not available in the case of a Term Plan.

Bonus

Endowment Plans provide different kinds of bonuses on the policy, like loyalty addition, yearly addition, and others. These get added to the Sum Assured at the time of payout.

Term Plans provide a fixed death benefit, and no bonus is present.

FAQs on Endowment Plan

What Are the Tax Benefits of Endowment Plans? up-arrow

The premium paid towards the endowment policy is tax exempted under 80C, and the returns are tax-free under section 10 (10D).

 

What Are the Additional Bonuses With Endowment Plans? up-arrow

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? up-arrow

The nominee is the person who is eligible to receive the Death Benefit in case of the demise of the policyholder. 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? up-arrow

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.