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Things to Know about Endowment Policy

dateKnowledge Centre Team dateMay 18, 2021 views157 Views
Things to Know about Endowment Policy

We work hard for securing our future from any possible financial shocks. Some of us choose to put our money in the best saving plans, while others may use a savings account. People may also choose a variety of investment portfolio to boost their wealth management. Although it is important that we save money for rainy days, it is equally important to choose where exactly and how we want to invest our money.

As we tend to age, we understand the value of buying a life insurance too. But then you consider whether you can afford the premiums? Buying a life insurance, servicing debts, lifestyle and regular expenses, and on top of that, you feel the pressure to save money. What if you get a life insurance cover along with a saving avenue? Well, that’s a win-win! If you are looking for a dual benefit policy that offers not only life insurance but also helps you grow your savings, an endowment plan is the one for you. You can save on a regular basis over a time period and if you survive policy maturity, you receive the entire corpus as a lump sum.

Don’t worry! If something happens to you, your nominees or beneficiaries will receive the Sum Assured along with bonus, if any. Here’s everything you want to know about an endowment policy.

What is an Endowment Policy?

In simple words, an endowment policy offers life cover along with 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 to help you meet financial goals such as the education of your children or their marriage, purchasing a house or even planning your retirement.

What are the Different Types of Endowment Plans?

Although endowment plans are considered to be one of the best financial tools that can help you achieve your milestones, it is necessary that you consider the different types of endowment plans before buying.

Listed below are 5 different types of endowment plans that you can choose from as per your financial requirement and circumstances:

1. Unit Linked Endowment Plan

In unit linked endowment plans, the premium that you pay is divided into 2 parts. One part is used to purchase units in different investment funds as per your preference and the other part goes toward your life insurance cover. This is often termed as Unit Linked Insurance Policy – one of the best saving plans that investors usually put their money in.

2. Guaranteed Endowment Plan

As the name suggests, under this plan, the policyholder receives guaranteed benefits. At maturity, the policyholder gets the Sum Assured along with Loyalty Additions, if any. Apart from that, with Guaranteed Savings Plan, if the policyholder survives the term, they will receive:

  • Guaranteed Sum Assured on Maturity, plus
  • Guaranteed Yearly Additions, plus
  • Guaranteed Loyalty Addition

Learn more about Guaranteed Savings Plan.

3. Full/With Profit Endowment Plan

The policyholder receives the Sum Assured as promised at the time of buying the policy. However, depending on whether or not the company declares a bonus, the final payout including the surplus amount may be higher upon policy maturity or death of the insured.

4. Low-cost Endowment Plan

Under such plan, the life insured is allowed to accumulate funds, which is usually paid after a determined period. This plan is specially designed to help the policyholders to build a corpus to secure their future or to help them pay off their loans and mortgages. Even if the policyholder passes away when the policy is in force, the nominees or beneficiaries will receive the Sum Assured.

5. Non-profit Endowment Plan

Such endowment plans offer guaranteed additions instead of bonuses since they do not participate in the profits of the life insurance company. This helps generate returns for the policyholder and also make them attractive as compared to other plans in the market.

What are the Features and Benefits of an Endowment Plan?

It is now clear that an endowment plan allows you to save for various goals of life. Buying a money back plan or endowment plan makes it easier for you to achieve your financial goals while protecting your loved ones.

1. Higher Return on Investment

An endowment plan provides financial security by helping you create wealth in the long term to meet the financial goals of your family. The benefits payable to the insured upon survival and the nominees upon death are higher as compared to a pure life insurance policy.

2. Premium Payment

The insured has the choice to pay the life insurance premium on a monthly, quarterly, half-yearly or annual basis. The frequency of premium payment is decided as per your preference. However, ensure that you pay the premium on time.

Learn which is cost efficient: paying premium monthly or annually?

3. Flexibility to Choose Cover

You can choose from additional coverage to protect you against critical/terminal illness, partial or permanent disability due to an accident and accidental death among others. Some plans also waive premium in the event of the insured suffering from either of these conditions.

4. Benefits on Both Survival and Death

Not only does the insured get the sum assured upon survival of policy period, his or her nominee also receives sum assured along with the declared bonus if any in the event of the death of the policyholder.

5. Tax Exemption

Tax on the premium paid can be saved as per provisions of Section 80C, while the maturity amount including final payout are also eligible for deduction as per Section 10(10D) of Income Tax Act.

6. Risk Factor

As compared to mutual funds, where the money is directly invested in stock markets and hence carries higher risk, traditional endowment plans help you grow your money with little or no risk.

What are the Riders Available in an Endowment Plan?

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

1. Premium Waiver

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

2. Terminal/Critical Illness

The policyholder will get a lump sum amount in case they are diagnosed with a terminal illness. That amount can be used to pay off the hospital expenses and you will not have to dip into your savings when you witness such emergency.

3. Accidental Death Benefit

If the policyholder passes away due to an unfortunate event of accident, 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 earning member of your family, then you must buy an endowment policy. In simpler terms, any individual who has a regular source of income and who has the responsibility of their loved ones should invest in an endowment plan. You can buy an endowment plan if you are:

  • A salaried professional
  • Self-employed individual
  • Businessman

With the best endowment plan, you do not have to risk a lot to gain returns.

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 keep in account your income, outgoings, any servicing or existing debts, current life stage and risk appetite. Also, the premium that you have to pay is another important factor that you must consider while looking for 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 term & conditions before signing on the dotted line to stay on the safer side.

Here’s everything about claim settlement ratio.

4 Things to Keep in Mind before Buying an Endowment Plan

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

1. Plan Early

The earlier you invest, the longer is your investment horizon and the higher are the returns that you reap over the long term. It also helps build the discipline of saving regularly over time to build a corpus for important milestones in life

2. Choose Riders as per your Needs

Riders are offered as inbuilt coverage by most insurers and you must use them to the fullest. Some companies might also offer a double endowment policy or education or marriage endowment plans.

3. Flexibility of Premium Payment

You can choose to pay a single one-time life insurance premium or limited premiums if your income is irregular whereas salaried professionals can go for a regular endowment policy.

4. Returns Offered

Many endowment policies offer both guaranteed and non-guaranteed returns. Guaranteed returns are declared upfront while purchasing the policy and are assured on policy maturity or death of insured. Non-guaranteed returns such as bonuses are variable in nature and are at the sole discretion of the insurance company.

Canara HSBC Oriental Bank of Commerce Life Insurance has a wide range of endowment plans that you may browse. From ULIPs, to endowment plans with Guaranteed Returns – you can choose a plan as per your risk appetite.

If you are still not sure, instead of opting for a traditional endowment policy, you can buy iSelect Star term insurance plan. Enjoy the return of premium benefit upon survival of policy period while staying protected for life or limited period of time as per your choice. Inbuilt coverage for accidental death, disability as well as child benefit among others offers additional protection. So, secure the financial future of your family by purchasing life insurance that suits your needs and helps your family achieve their financial goals and fulfill their dreams.

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Frequently Asked Questions (FAQs) for Life Insurance

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age:It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chances of contracting diseases is low. Young people also opt for policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender:The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits:The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term:Policy terms are also taken into consideration by insurers while deciding the premium amount. Policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation:The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physicianâ s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence. There are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: An insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the policy, the insurance companies generally pay 80% of the total premiums paid.

Buying life insurance online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. Online insurance policies also offer higher benefits. Customers should, however, buy online policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one policy to increase the cover or avoid claim rejection. In case of multiple policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In the case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy life insurance, the insurance company asks for the nominee details. Only the person named as the nominee in the policy can cash out a life insurance policy in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in the case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term. The family receives the death benefit. In the case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment options are chosen the policy works as a source of regular income.

It is a popular misconception that life insurance is only for accidental deaths. A term life insurance plan like iSelect also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy life insurance in your early 20s because it’s is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy life insurance at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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