What is Endowment Policy? Meaning, Types and it's Benefits

Written by : Knowledge Centre Team

2025-11-12

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An endowment plan is one of the most popular life insurance policies. The long-term safety of capital and guaranteed returns make it one of the best savings options for important financial goals. The life cover in an endowment plan makes it a preferred investment for goals that you would want to achieve. An endowment life insurance policy is a good investment option for financial goals such as:

A child’s higher education
Children’s marriage
A dependent relative's or family member's financial security
Preservation of wealth for a long time
Legacy or wealth distribution to the next generation

Tax savings and tax-exempt maturity mean your wealth will be safe from the tax regulators. The long-term nature of the investment means you can use the plan not only to preserve wealth but also to pass it on to the next generation without incurring tax liability.

Key Takeaways

An endowment plan offers both life protection and guaranteed savings for long-term financial goals
It provides a maturity payout that helps you meet milestones like education, marriage, or wealth creation
Endowment plans offer low-risk returns, making them suitable for conservative investors
You can avail loans against your policy once it builds a surrender value
Endowment plans ensure disciplined, goal-based savings through regular premium payments

What is an Endowment Plan?

An endowment plan is a type of life insurance policy that provides a lump-sum payment on maturity or on death. An endowment policy helps the policyholder build a risk-free savings corpus and offers financial security for the family in the event of an unfortunate event. An endowment policy provides life cover and the benefits of a savings plan.

You can save regularly over a specific period to accumulate a significant corpus that you can enjoy at maturity. If the policyholder survives the policy term, they will get the sum assured in a lump sum. An endowment policy is a good option for meeting financial goals, such as our children's education or their marriage, purchasing a house, or planning your retirement.

How Does an Endowment Policy Work?

An endowment plan involves both a death benefit and a maturity benefit. These will be available provided you pay all your premiums.

If you unfortunately pass away during the policy term, your family members will receive a death benefit, which is the sum assured decided at the beginning of the policy. In addition to the sum assured, they will also receive the guaranteed yearly additions or any bonuses applicable under the policy.

If you survive the policy term, you will receive a maturity benefit, which is the guaranteed amount payable at the end of the policy term. Other benefits, such as guaranteed yearly additions and loyalty additions, may also be included.

What are the Different Types of Endowment Policies?

An endowment plan is one of the best financial tools for achieving your milestones. Therefore, you should understand the various types of endowment plans before buying one.

Listed below are five different types of endowment plans that you can choose from as per your financial requirements and circumstances:

Unit-linked Endowment Plan: In a unit-linked endowment plan, the premium that you pay is divided into two parts. One part is used to purchase units in various investment funds of your choice, and the other part goes toward your life insurance coverage. This is often referred to as a Unit Linked Insurance Policy (ULIP), one of the best savings plans that investors typically invest in.

Guaranteed Endowment Plan: As the name suggests, under this plan, the policyholder receives guaranteed benefits. At maturity, the policyholder receives the sum assured, plus any applicable loyalty additions.

Full/With Profit Endowment Plan: The policyholder receives the sum assured as promised at the time of purchase. However, depending on whether the company declares a bonus, the final payout, including any surplus, may be higher upon policy maturity or the insured's death.

Low-cost Endowment Plan: Under such a plan, the life insured is allowed to accumulate funds, which are typically paid after a specified period. This plan is designed to help policyholders build a corpus to secure their future or pay off their loans and mortgages. Even if the policyholder passes away while the policy is active, the nominees or beneficiaries will receive the sum assured.

Non-profit Endowment Plan: Such endowment plans offer guaranteed additions rather than bonuses because they do not participate in the life insurance company's profits. This helps generate returns for the policyholder and also makes the plan more attractive than other plans in the market.

Did You Know?

From September 22, 2025, the GST rate on endowment policy premiums was officially reduced to 0%

Source: Economic Times

Features and Benefits of an Endowment Plan

An endowment plan allows you to save for various life goals. Buying a money-back or endowment plan helps you achieve your financial goals while protecting your loved ones. An endowment plan provides the dual benefit of both savings and life insurance coverage in a single plan. However, this is not the only feature of an endowment policy.

Listed below are some of the features of an endowment plan:

Security of a Life Cover: An endowment plan provides financial protection for your family. If you pass away during the policy term, your family will receive the sum assured, as determined at the time of purchase. You can choose your life insurance cover before buying the endowment policy. This is the amount that will be provided to your family if you pass away during the term. You can also choose your riders in the policy. Factor in all your family’s future needs before deciding on a suitable financial cover.

Guaranteed Returns: An endowment plan helps you build a savings habit. You are required to pay the premiums regularly. The amount you contribute to the policy earns a fixed rate of interest. At policy maturity, you will receive a guaranteed sum, including interest and any additions, ensuring you are assured of the amount and can plan for the future.

Flexibility in Premium Payment: You have full flexibility to choose your premium's mode and frequency. You can pay the life insurance premium on a monthly, quarterly, half-yearly or annual basis as you prefer. You can choose the limited payment option, which lets you pay your premium over a set period and enjoy the benefit later.

Low Risk: The returns in endowment plans are guaranteed. You are aware of the returns that will be generated under the policy. Thus, no risk or very low risk is involved in an endowment policy.

Bonus: The benefits that are present in the policy, i.e., both death and maturity benefits, are further increased thanks to bonuses. Endowment plans include bonuses in the form of guaranteed yearly additions, interim bonuses, revisionary bonuses, etc.

Maturity Value: An endowment life insurance policy is more than just a protection plan. This type of life insurance offers death benefits and a maturity value. That is, if you survive the policy term, you will still receive the benefit. If you have been paying your premiums, you will surely get this benefit. This value depends on the policy type and the insurer and can be used to achieve your goals.

Addition of Riders: You can further enhance your endowment plan with the help of riders. These additional benefits help broaden the scope of your existing policy. With the help of riders, you can enhance your sum assured and cover situations that the base policy doesn’t.

Tax Exemption: Endowment plans can also help you save on taxes. The premium paid is eligible for deduction under Section 80C, and the maturity amount, including the final payout, is also deductible under Section 10(10D) of the Income Tax Act.

What are the Riders Available in an Endowment Insurance Policy?

Riders help you enhance the in-built features and benefits of the plan. Remember that riders are optional; therefore, you need to include them in your plan if you want additional benefits. They may vary from plan to plan. However, we have listed below a few common riders you may find in endowment plans.

Premium Waiver: If something unfortunate happens to the policyholder, such as they suffer from a lifestyle disease or meet with an accident, the life assured will not be liable to pay the remaining premiums. The remaining premiums will be waived off by the insurance company.

Terminal/Critical Illness: The policyholder will receive a lump-sum payment if diagnosed with a terminal illness. That amount can be used to cover hospital expenses and ensure they do not have to dip into their savings during such an emergency.

Accidental Death Benefit: If the policyholder passes away due to an unfortunate event, the insurance company will pay an additional death benefit, along with the existing death benefit, to the beneficiaries or nominees.

Who Should Buy an Endowment Plan?

If you are the primary earner in your family, you should purchase an endowment policy. In simple terms, anyone with a regular income and responsible for caring for their loved ones should invest in an endowment plan.

You can buy an endowment plan if you are:

A salaried employee
Self-employed individual
Businessman

With the best endowment plan, you do not have to risk much to achieve returns.

When Should You Buy an Endowment Life Insurance?

An endowment life insurance policy helps you save in a disciplined manner and, at the same time, protects your life. Anyone over the age of 18 who earns income should invest in an endowment plan.

But you should consider buying an endowment plan if you can relate to the following situations:

To protect your family members financially, even after you are not present with them
If you want to have a plan with a long-term horizon
If you want to create a risk-free corpus to achieve goals such as a child’s education or a daughter’s marriage
If you are looking for a safe investment to park your funds and want to save taxes

Assess your current income and expenses before purchasing an endowment plan. Learn how much you can spend on premiums and choose a plan accordingly.

Things to Consider Before Buying an Endowment Insurance Policy

The most important factor to consider when choosing an endowment plan is the return on investment. However, there are a few things that cannot be overlooked:

Plan Early: The earlier you invest, the longer your investment horizon, and the higher the returns you will realise over the long term. It also helps build the discipline to save regularly over time, building a corpus for important life milestones.
Select Riders Based on Your Requirements: Most insurers offer riders as in-built coverage, and you must use them to the fullest. Some companies might also offer a double-endowment policy, education, or marriage endowment plans.

Premium Amount: Endowment policies are generally taken from a long-term perspective. This is due to their duration, which is generally more than 10 years. This will mean that you will have to pay premiums for the long term. You should check whether the premium amount is affordable and whether you can continue without defaulting, as late payment of premiums can lead to policy cancellation without benefits.

Payment Flexibility for Premiums: You can choose to pay a single, one-time life insurance premium or a limited number of premiums if your income is irregular. In contrast, salaried professionals can opt for a regular endowment policy.

Returns Offered: Many endowment policies offer both guaranteed and non-guaranteed returns. Guaranteed returns are declared upfront at policy purchase and are guaranteed at policy maturity or upon the insured's death. Non-guaranteed returns, such as bonuses, are variable and at the insurance company's sole discretion.

Guaranteed Addition/Bonus: Endowment policies include bonuses. This is the additional amount you receive yearly if you pay your premiums regularly. This is often paid as a percentage of the premium. Each policy has a different rate. Bonus is the additional amount you get from the insurance company for your endowment plan. This is present in the endowment policies that are profit-linked.
A bonus is provided if the company registers profits. This helps enhance your maturity benefits at no additional cost. Consider the plans that give out bonuses.

Claim Settlement Ratio and Process: The claim settlement ratio is one of the most important metrics to review. This can be used as a parameter to assess the insurance company's viability and trustworthiness. This ratio shows the percentage of claims the company settled relative to the total claims it received. The higher the CSR of the insurance company, the better the chances of your claim settlement. Also, go through the process of claim settlement with the insurer. Choose an endowment plan from a provider where the settlement process is simple and quick. At Canara HSBC Life Insurance, we offer a claim settlement ratio of 99.43%, ensuring that your family’s financial support is processed swiftly and reliably when they need it the most.

Are Endowment Insurance Policies Suitable for You?

An endowment plan is one of the safest plans available in the market. It provides life coverage for a specific period and also ensures that you receive a maturity sum after your policy comes to an end.

The maturity amount is guaranteed and enhanced by the policy’s annual additions and other benefits. Thus, this amount can be used to achieve your long-term goals.

So, if you have a goal that you want to achieve some years down the road and it requires a lump sum of money, then you can surely consider this plan. Some goals you can aim to achieve with this plan include funding your education, your child’s marriage, and an overseas trip. This can also be used if you want to park your lump sum fund in a risk-free asset.

How to Buy the Best Endowment Plan in India?

While searching for an endowment plan, you must consider a few things to buy the best endowment plan available in India. You must take into account your income, outgoings, any servicing or existing debts, current life stage, and risk appetite. Also, the premium you must pay is another important factor to consider when selecting an endowment plan.

Check the claim settlement ratio of the insurance company before you make a decision to buy the plan, as you must know the degree of ease and convenience of dealing with the insurance company. Ensure you read the terms and conditions before signing to stay on the safe side.

Documents Required to Buy an Endowment Plan

You can purchase an endowment plan either online or offline. The first step in purchasing the plan is to complete the application and proposal form. After completing this form, you must submit the required documents. Be sure to have all required documents ready for purchasing the plan.

The list of documents requested by the insurance providers to carry out the purchase of an endowment plan is given below. You can submit these either offline or via the company’s website.

Passport Size Photograph
Age proof (birth certificate)
Identity proof (AADHAR card, PAN card, etc.)
Address proof (AADHAR card, Voter ID, copy of bills, etc.)

All these documents must be original. If any discrepancy is found, your application may be cancelled, and you may incur charges.

Here’s everything about the claim settlement ratio.

Claim Process of Endowment Plans

If you die during your endowment plan, then your family needs to file a claim to receive the death benefit.

1. Fill out the Claim Form:

This form is part of the set to be submitted to the provider to initiate the claim. The claim form should be signed by the beneficiary or the nominee of the endowment policy.

Here are the documents that may be

Loss statement from the last treating doctor
School or college certificate
Employer certificate
Certificate from the treating hospital
Death Claim form (also known as Form C)

Apart from this, insurers also ask for the statement of the witness who was present at the time of the death.

If the death was due to unnatural causes, then a post-mortem report or an investigation report in the case of a police case is also required.

Endowment Plan vs Money Back Policy

Both endowment plans and money-back plans are types of life insurance policies that offer both death and maturity benefits. However, these plans differ in certain respects as well. These are given in the table below:

Basis	Endowment Plan	Money Back Plan
Meaning	It is a type of life insurance plan that provides live cover and opportunity to save.	This is a type of plan that provides you with a certain sum at regular intervals during the policy term
Duration	10-30 years	15-50 years
Death Benefit	Yes	Yes
Maturity Benefit	Maturity benefit is provided after the policy term is over	Maturity benefit is paid as regular payments that begin during the policy term, with the remaining amount payable at maturity, in accordance with the policy terms
Nature of Payout	Lump-sum	Instalments
Loan Facility	You can take a loan from your endowment plan after the policy acquires a surrender value	A loan facility plan-specific and may be available once the policy acquires surrender value (as per policy terms)
Suitability	If you want to save money for a long-term goal	If you are looking for a regular payout to meet your short-term needs.

Endowment Plan vs Term Insurance Plan

Endowment and term insurance plans may appear similar at first glance, but they offer distinct advantages. You can review their key differences in the table below:

Basis	Endowment Plan	Term Plan
Meaning	It is a variant of a life insurance plan that helps you build your savings, along with providing life cover	This is a type of plan that offers to cover your life for a specific duration
Purpose	For the protection and to achieve goals	For protection only
Duration	10-30 years	10-40, some plans offer cover up to the age of 99*
Maturity Benefit	A guaranteed maturity benefit is provided after the policy term is over	There is no maturity benefit in a term plan. However, some term plans may have a return of premium option
Affordability	This plan is generally more expensive than the term plan	A term plan is one of the most affordable life insurance plans
Sum Assured	Lower	High sum assured due to the plan being only for protection
Nature of Payout	Lumpsum (both death and maturity benefit)	Lump-sum death benefit
Bonus	Present, in the form of loyalty additions and yearly additions	Not present
Loan Facility	You can take a loan from your endowment plan after the policy acquires a surrender value	A loan facility is not available in the case of a term plan
Suitability	If you want to save money for a long-term goal	It is a necessary plan if you want to protect your dependents at an affordable price

Wrapping Up

Endowment policies can contribute significantly to long-term financial security. They provide a combination of life insurance coverage and disciplined savings, allowing policyholders to accumulate a substantial corpus over time. The guaranteed maturity benefits, along with potential bonuses and dividends, can be used to fund important financial goals such as retirement, children's education, or a home purchase

Additionally, the tax benefits associated with endowment policies under Sections 80C and 10(10D) of the Income Tax Act can further enhance the returns and make them an attractive long-term investment option. By offering a balance of protection and growth, endowment policies can help individuals and families achieve their financial objectives while ensuring financial security for the future.

Glossary

Claim Settlement Ratio: CSR is the percentage of total claims an insurer successfully settles in a year
Dividend: a part of a company’s profits that is paid to the people who own shares in it
Rider: A rider is an add-on benefit that enhances a base insurance policy with extra coverage
Sum Assured: The guaranteed amount your nominee receives in case of your unfortunate death
Mortgage: A mortgage is a long-term loan where your house acts as the security for repayment

Frequently Asked Questions (FAQs) for Endowment Policy

An endowment plan is a type of life insurance policy that helps you build savings while providing life cover. It pays a lump sum amount at maturity if you outlive the policy term, and gives a death benefit to your family if something happens to you during the term. It is ideal for long-term financial goals such as education, marriage, or building a secure savings corpu

Being a type of life insurance plan, an endowment policy does offer life cover. That is, it includes a death benefit. This death benefit will be paid to your beneficiaries in the event of your death during the term of your endowment plan.

The death benefit is the sum assured you choose when you purchase the policy. However, it can be the following if the amount is higher:

105% of Total Premiums Paid as on the date of death, or
Guaranteed Sum Assured on Maturity
10 times the annualised premium

An endowment plan is one of the safest insurance plans available in the market. One of the main features of an endowment plan is its ability to offer you guaranteed returns at the time of maturity. That is, you are guaranteed a fixed amount upon policy expiration. This makes the plan very reliable. You can use this to plan for a long-term goal.

Endowment plans offer you an additional sum in the form of bonuses. These are added to your total at no additional cost.

These bonuses are:

Reversionary Bonus
Terminal Bonus
Interim Bonus
Cash Bonus

These are declared by the insurance companies, often as a percentage of the sum assured.

The premium is the amount you pay to keep your endowment plan active. The premium amount is determined by many factors and thus varies from person to person. Here are the factors that affect the premium:

Age
Gender
Sum assured
Duration
Lifestyle and habits
Medical History

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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