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What is an Endowment Plan?

Endowment plans refer to the life insurance policies that offer risk cover under unfortunate event and a maturity benefit at the end of the policy term.

  • 27,930 Views | Updated on: Mar 20, 2024

There is no denying that everyone wants a long and happy life for themselves and their loved ones. This is where life insurance has gained immense popularity. It not only protects your loved ones after your untimely death or disablement but also offers a secure, happy, and fulfilling post-retirement life that you can enjoy with your whole family.

But, do you wonder what is an endowment plan or why it has gained immense popularity? Worry not! This article contains the guide for an endowment plan. Let’s dive deeper to know the details.

What is Endowment Insurance Plan?

Endowment plans refer to the life insurance policies that offer risk cover to the policyholder under the unfortunate event and a maturity benefit at the end of the policy term. The policyholders are paid a lump sum after a specific period called the maturity period. The insurance company will pay the assured amount to the policyholder’s nominees in case of the holder’s death or the holder themselves on a fixed date.

Why Must You Apply for an Endowment Plan?

Now that you know what is endowment plan in insurance is, let’s get into the details regarding why you must apply. An endowment plan offers apparent benefits to the policyholders. When the endowment insurance policy matures, the policyholder has a pool of savings. They can either reinvest the amount, use it for their personal needs or enjoy life post-retirement. Therefore, an endowment policy is almost risk-free and offers a steady amount on a fixed date as long as the premium is paid.

Benefits of an Endowment Plan

Below mentioned are some of the benefits of an endowment plan:

1. Maturity Benefit

Under the endowment life insurance plan, the policyholder gets a substantial amount at the end of the term when their policy matures.

2. Death Benefit

This is the money that your loved ones/ nominee receive once they claim for it in case of your untimely death. It is just like a life insurance policy cover.

3. Tax Benefits

Endowment insurance plans also offer tax benefits to the policyholder. The premiums paid for the policy can help you reduce your taxable income per India’s Income Tax laws.

Endowment plans with a maturity period of 15 to 20 years are more profitable since you can quickly accumulate more money over a more extended period. In addition, the amount paid on the maturity can then be used to fund significant expenses in the future.

Some plans even offer guaranteed returns and bonuses to the policyholder in addition to the sum assured, which is added to the policy holder’s account every year. These benefits and the tax savings make the life insurance endowment policy an extremely appealing investment instrument.

If you are looking for a low-risk plan with the dual benefit of insurance and investment or for a plan with a long-term investment perspective that gives you a lump sum amount in the end, then a savings endowment plan is suitable.

Some Points to Remember

Now since you know what is whole life endowment plan, here are some points you must remember before buying this plan.

Endowment plans come with a surrender value, i.e., the amount the policyholder receives in case they want to discontinue the plan. However, you as a policyholder are eligible to receive this amount only after paying the premium for at least two years. In case of a financial emergency, this surrender money can come handy. However, it would be best if you keep in mind that the surrender value is usually lower than the total premium paid in the initial policy years, which means that it isn’t a benefit as much as partial compensation. Therefore, investing for a more extended period in endowment policy is advisable.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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