An Endowment policy is a type of life insurance policy, which provides the mutual benefit of insurance coverage and savings. It helps the insured to save regularly over a certain period to avail a lump sum amount at the maturity of the plan. This maturity amount is paid if the policyholder survives the entire term of the policy. The death benefit depends upon the plan you have chosen.
To further understand what endowment policies are, here’s a look at their features and benefits.
- They are low-risk plans as they guarantee maturity benefits.
- It gives financial security to your dependents.
- These policies help you get tax benefits.
There are several types of bonuses stated by insurers. Bonus is an extra amount of money supplementary to the proceeds, which is distributed to the insured by an insurer. Only individuals who bought a with-profits policy are eligible to a share in these profits. The bonus is given if the insurance company has surplus funds left after claims, costs, and expenses have been paid in that particular year.
One can buy the following riders and avail their benefits along with their endowment plans:
- Accidental Death Rider: This rider gives the insured an additional benefit of accidental death along with a death benefit. In layman terms, the nominee receives an accidental death benefit in case of accidental death of the insured along with the death benefit.
- Critical Illness Cover: This rider works as an advantage when the insured is diagnosed with a critical illness. Critical illnesses include serious medical issues such as heart attack, cancer, or kidney failure. Purchasing this rider provides a lump sum to the insured upon diagnosis of any such critical illnesses.
- This rider is one of the most useful ones, as it gives financial help to the insured in the event of permanent or partial disability.
- Hospital Cash Benefit: With this rider, the policyholder gets a daily allowance if he/she is hospitalised. Along with cash benefit, this rider also takes care of post-hospitalisation expenses.
- Waiver of Premium: Under this rider, the policyholder is not required to pay any premium for the plan if he/she suffers from a permanent disability or a critical disease.
Upon surviving the term of the policy or upon maturity of the policy, the policyholder receives a sum-assured plus a bonus amount for the tenure of the policy. The amount received upon maturity is tax-free.
Features of an Endowment Policy
- Death along with Survival benefits: The nominee gets the sum assured amount along with bonuses if the insured dies before the maturity of the policy. Also, the insured is liable to get the sum assured if he/she outlives the policy.
- Higher returns: This plan provides financial protection to the family as well as helps build a substantial corpus for the future. Be it the survival benefit or death benefit, the payout of this plan can be much higher compared to that of a whole life insurance policy.
- Premium Payment Frequency: The policyholder can make regular, single, or limited payments of the premium amount based on the policy chosen by him. One can also choose to pay at regular intervals of yearly, half-yearly, quarterly, or monthly.
- Flexibility in Cover: Policyholders can add riders, such as critical illness, and accidental death, to the plan and increase their life cover. Some of these plans also offer premium payment waiver in case of permanent disability or critical illness.
- Low Risk: These policies are safer compared to mutual funds or ULIPs, as the amount is not put directly in equity funds or the stock market.