Insurance plans play a significant part in financial planning, offering protection against uncertainties of life and other risks. An endowment policy is one such life insurance option that offers a death benefit for a certain period and a maturity benefit on term completion. 

It is an advantageous investment-cum savings tool that can also help you fulfil life-long goals. So, to gain a more precise idea, find out the different types of endowment life insurance policies and how they work.

Unlike whole life insurance plans, endowment life insurance plans have a shorter maturity period of ten, fifteen, or twenty years, depending on your age.

Therefore, your nominees will receive death benefits in case of an unfortunate event leading to your demise within the policy term.

However, you will receive a sizable lump sum as a maturity benefit if you survive when the policy matures. Therefore, endowment plans can be considered dual benefit plans, where the accumulated capital turns into productive assets in the future.

Nonetheless, just like other life insurance plans, endowment policies come in various types, each offering different benefits. Therefore, before opting for one, you must understand its features and benefits to figure out which suits your requirements the best.

There are five types of endowment plans, each offering different terms and benefits. Hence, before purchasing, it is important to know about these types of endowment policies:

1. Full Endowment Plan

A full-endowment policy is one that comes with a sum assured along with an added bonus. Therefore, you will be entitled to a guaranteed sum assured on the maturity of the policy, or your nominees will get a death benefit, whichever occurs earlier. This money is pre-determined and fixed.

In addition, the company will pay you bonuses depending on their performance, thereby boosting the final payout. Therefore, if you are looking for a profit-earning insurance plan, a full-endowment plan offers comprehensive added income over time.

2. Low-Cost Endowment Plan

In a low-cost endowment policy, the premium cost is lower than that of a full-endowment plan. However, it offers both guaranteed sum assured as death or maturity benefit along with annual bonuses.

This plan was mainly designed to let you accomplish a specific financial goal after a certain period, especially to pay off mortgages. For instance, if you have a mortgage due 10 years from the policy purchase, you can select the policy term accordingly.

Next, when the policy matures in 10 years, you can fulfil your goal using the fixed sum assured added with yearly bonuses.

3. Unitised With-Profit Endowment Plan

Unitised with profit endowment policies have a much higher potential for earning. This is because they offer both guaranteed and non-guaranteed returns. Teaming up with the high earning potential of Unit-Linked Insurance Plans (ULIPs), the bonuses you receive will depend on the performance of the funds in the capital market.

However, they keep your investments safe through an assured payout when the plan matures. This dual-benefit option is designed to fetch you higher returns within a safe investment environment. Thus, the premiums also cost higher.

4. Non-Profit Endowment

In this type of endowment policy, your insurance provider will offer you a lump sum as a maturity benefit or death benefit to your beneficiaries in case of a catastrophic event, whichever takes place earlier.

Therefore, as the name suggests, it will pay no yearly profits as bonuses keeping the end return fixed. The main objective behind this policy is to offer financial security to your family during an unfortunate event. Thus, the premiums are also more cost-effective than the rest.

5. Unit-Linked Endowment Plan

A unit-linked endowment plan is devised for those with a higher risk appetite. Its dual benefits include a guaranteed return of the sum assured (death or maturity benefits), and non-guaranteed returns include high-profit returns based on the performance of the funds invested by your insurer. This type of plan has the potential for the highest returns and thus comes with a higher premium cost.

Before you purchase an endowment plan, take a look at the benefits you can reap from it:

• Offers Life Coverage: It safeguards your family from financial shortage by offering life coverage in your absence.
• Offers Guaranteed Returns: This plan offers you guaranteed returns given you have paid the premium in full. 
• Offers High Liquidity: It also offers you to withdraw the sum assured amount partially in case you need it for financial emergencies.
• Boosts the Practice of Saving: Profit or non-profit endowment plans foster the habit of regular savings in order to fulfil future dreams and goals.
• Offers Tax Benefits: Endowment plans extend tax benefits up to ₹ 1.5 Lakhs under sections 80C and 10(10D) on both premium payments and on maturity/death benefits, respectively.
• Offers Loan Against Policy: Some endowment plans may also allow you to borrow in case of a financial emergency. Again, it delivers excellent financial relief as it requires no added collateral.
• Offer Rider Options: Endowment plans come with a wide range of rider options such as critical illness rider, accidental death rider, disability rider, etc. Therefore, as per your needs, you can add one or multiple riders to your plan by paying an additional fee.

An endowment plan is one of the safest investments, offering life coverage, guaranteed returns, high liquidity and profit returns under one umbrella. Although it pays a lower return than many other investment products, it also comes with a guaranteed return and high liquidity. 

Moreover, the different types of endowment life insurance policies mentioned above show that the profit you receive can vary depending on the type you choose and your risk appetite. So, before purchasing one, weigh your budget, expectation and risk-taking capacity to get the best out of your purchase.