Simplifying Life Insurance in India
Types of Endowment Life Insurance Plans in India in 2024
Insurance plans are crucial in financial planning, protecting against uncertainties and other risks. An endowment policy is a type of life insurance that provides financial security to your loved ones if something happens to you and helps you save over time. It offers a payout either when the policy matures or if the policyholder passes away during the term.
This makes it a versatile option for anyone looking to secure their future while building up savings. To understand its benefits, let’s look at the different types of endowment life insurance policies and how they work.
Table of Contents
How Does an Endowment Life Insurance Plan Work?
Endowment life insurance plans are designed to offer both protection and savings over a specific period, typically ranging from ten to twenty years, depending on your age. Unlike whole life insurance, which covers you for your entire life, endowment plans have a set maturity date.
If something unfortunate happens during the policy term, your beneficiaries receive a death benefit. However, if you outlive the policy term, you receive a lump sum as a maturity benefit. What makes endowment plans particularly interesting is the variety of options available. Each type of endowment plan offers unique benefits tailored to different financial needs and goals.
Understanding how these plans generally work lays the foundation for exploring the different types, helping you choose the one that best fits your plans.
8 Types of Endowment Life Insurance Policy
Let’s look at the different endowment policies to help you choose the one that best suits your financial needs and goals.
1. Full Endowment Plan
A full endowment plan guarantees a predetermined sum assured, which is paid out at maturity, along with potential bonuses. This type is ideal for those seeking a combination of life insurance coverage and investment growth over time.Overview of Full Endowment Plan
Features and Benefits of Full Endowment Plan
- Guaranteed Sum Assured: Provides a pre-determined sum assured, which is paid out at maturity or upon the policyholder's death.
- Bonus Accumulation: Additional bonuses may be declared by the insurer based on performance, enhancing the payout.
- Flexible Premium Payment: Options include regular, single, or limited premium payments.
- Low-Risk Investment: Not directly linked to the stock market, making it a safer option.
- Loan Availability: Loans can be availed against the policy after a certain period.
- Tax Benefits: Premiums paid are eligible for tax deductions under Section 80C, and maturity proceeds may be tax-exempt under Section 10(10D).
2. Low-Cost Endowment Plan
This plan offers lower premiums while securing a guaranteed sum assured. It's suitable for achieving specific financial goals at a more affordable cost, with potential bonuses.Overview of Low-Cost Endowment Plan
Features and Benefits of Low-Cost Endowment Plan
- Guaranteed Sum Assured: Offers a guaranteed sum at maturity or upon death.
- Annual Bonuses: The insurer may provide annual bonuses that increase the total payout.
- Affordable Premiums: Lower premium payments compared to other endowment plans.
- Low-Risk Investment: Safer due to no direct stock market exposure.
- Loan Facility: Loans can be availed after a certain period.
- Tax Advantages: Eligible for tax deductions under Section 80C, with potential tax exemption on maturity proceeds under Section 10(10D).
3. Unitized With-Profit Endowment Plan
This plan combines guaranteed returns with the possibility of additional non-guaranteed returns based on market performance. It offers a balance between security and growth.
Overview of Unitized With-Profit Endowment Plan
Features and Benefits of Unitized With-Profit Endowment Plan
- Market-Linked Growth: Part of the premiums is invested in market-linked funds, providing potential for higher returns.
- Guaranteed Minimum Return: Offers a guaranteed minimum sum assured plus potential bonuses.
- Bonus Accumulation: Annual bonuses are added based on the insurer's performance.
- Flexible Premium Payment: Allows regular, single, or limited premium payments.
- Loan Availability: Loans can be availed after a specific period.
- Tax Benefits: Premiums are eligible for tax deductions under Section 80C, and maturity proceeds may be tax-exempt under Section 10(10D).
4. Non-Profit Endowment Plan
A non-profit endowment plan provides a fixed lump sum as a maturity or death benefit without additional bonuses. It offers simplicity and predictability in returns.Overview Non-Profit Endowment Plan
Features and Benefits of Non-Profit Endowment Plan
- Fixed Payout: Offers a fixed lump sum as maturity or death benefit without bonuses.
- Straightforward Terms: No bonuses or riders, providing simplicity.
- Low-Risk Investment: Not exposed to market risks, ensuring stability.
- Loan Availability: Policyholders can avail loans after a specified period.
- Tax Benefits: Premiums qualify for tax deductions under Section 80C, with potential tax exemption on maturity under Section 10(10D).
5. Unit-Linked Endowment Plan
This plan invests premiums in market-linked funds, offering high return potential alongside guaranteed benefits. It's suitable for those with a higher risk tolerance.Overview Unit-Linked Endowment Plan
Features and Benefits of Unit-Linked Endowment Plan
- Market-Linked Investment: Invests premiums in various market funds, offering high return potential.
- Guaranteed Benefits: Provides guaranteed sum assured along with potential market gains.
- Flexible Premium Payment: Allows for regular, single, or limited premium payments.
- High-Risk Investment: Linked to market performance, thus carrying higher risk.
- Loan Availability: Loans can be availed against the policy after a specified period.
- Tax Benefits: Premiums are eligible for tax deductions under Section 80C, with potential tax exemption on maturity under Section 10(10D).
6. Guaranteed Endowment Plan
A guaranteed endowment plan ensures a lump sum return at maturity, along with potential loyalty additions. It is ideal for those seeking certainty in their returns.Overview of Guaranteed Endowment Plan
Features and Benefits of Guaranteed Endowment Plan
- Guaranteed Lump Sum: Provides a guaranteed sum assured at maturity, offering financial security.
- Potential Loyalty Additions: This may include loyalty additions depending on insurer performance.
- Low-Risk Investment: Not linked to the stock market, ensuring stable returns.
- Loan Availability: Policyholders can avail loans after a specific period.
- Tax Benefits: Premiums qualify for tax deductions under Section 80C, and maturity proceeds may be tax-exempt under Section 10(10D).
7. Limited Premium Payment Endowment Plan
This plan allows you to pay premiums over a shorter duration while enjoying benefits for a longer period. It is ideal for those who want to complete premium payments early.Overview of Limited Premium Payment Endowment Plan
Features and Benefits of Limited Premium Payment Endowment Plan
- Shorter Premium Term: Allows premium payments over a shorter duration while enjoying long-term benefits.
- Extended Coverage: Offers extended coverage and benefits even after premium payments end.
- Low-Risk Investment: Safer option due to no direct exposure to the stock market.
- Loan Facility: Loans can be availed after a specific period.
- Tax Benefits: Eligible for tax deductions under Section 80C, with potential tax exemption on maturity under Section 10(10D).
8. Money-Back Endowment Plan
This plan offers periodic payouts during the policy term, with the remaining sum assured and bonuses paid at maturity. It’s designed for those who need regular returns.Overview of Money-Back Endowment Plan
Features of Money-Back Endowment Plan
- Regular Payouts: Offers periodic payouts during the policy term, providing liquidity.
- Guaranteed Sum Assured: Provides a lump sum at maturity or death, despite regular payouts.
- Flexible Premium Payment: Options include regular, single, or limited premium payments.
- Loan Availability: Loans can be availed after a specified period.
- Tax Benefits: Premiums qualify for tax deductions under Section 80C, and maturity proceeds may be tax-exempt under Section 10(10D).
What are the Benefits of Endowment Plan?
Here are the key benefits of endowment plans that make them a reliable choice for long-term financial security.
- Guaranteed Returns with Life Cover: Endowment plans offer a guaranteed lump sum payout at the end of the policy term, along with life insurance coverage.
- Access to Funds: While primarily long-term, endowment policies allow for early access to funds through surrendering the policy or taking a loan against it in emergencies.
- Tax Advantages: Premiums paid are eligible for tax deductions under Section 80C, and the maturity benefits are tax-free under Section 10(10D).
- Low-Risk Investment: These plans are regulated and provide a safer investment option than more volatile financial products.
- Loan Option: You can use your endowment policy as collateral to secure a loan, providing financial flexibility without risking physical assets.
- Balanced Insurance and Investment: Endowment plans combine life insurance with an investment component, ensuring benefits for you or your beneficiaries.
- Long-Term Savings: They are ideal for long-term financial goals, like education or retirement, and encourage disciplined saving.
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 has 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 your chosen type and risk appetite. So, before purchasing one, weigh your budget, expectations, and risk-taking capacity to get the best out of your purchase.
FAQs about Types of Endowment Plan
What are the types of bonuses available in an endowment plan?
There are generally two types of bonuses in an endowment plan: reversionary bonus and terminal bonus. A reversionary bonus is the bonus added to the sum assured on maturity. This is the amount declared by the end of each year but is payable when the term ends. Terminal Bonus refers to the bonus your insurance provider offers at the end of the policy term. It is paid from the insurer's investment profits. You will receive this amount along with the sum assured.
What are the two main differences between an endowment policy and a term insurance policy?
The two main differences between term insurance plans and endowment plans are:
- Returns: Endowment plans offer guaranteed sums assured to the nominees called maturity benefits and Death Benefits. However, the term plan does not provide any maturity benefit.
- Type of Payment: In an endowment plan, you will receive both the sum assured and the bonuses in a lump sum. However, in term insurance, you can either receive it in lump sums or monthly installments.
Will I receive tax benefits on endowment premium payments?
Yes, under Section 80C of the Income Tax Act, 1961, you can avail tax deductions of up to ₹1.5 Lakhs from the premiums you pay each year. Moreover, you can also claim tax exemption on the maturity benefits as per Section 10(10D), subject to certain conditions.
What are the different types of endowments?
Endowment plans include:
- With-Profit Endowment: Offers a guaranteed sum plus bonuses.
- Low-Cost Endowment: Features lower premiums and benefits.
- Unitized With-Profit Endowment: Provides market-linked returns with assured payouts.
- Non-Profit Endowment: Delivers fixed benefits without bonuses.
- Unit-Linked Endowment: Combines insurance with investment in market funds.
What is a 10-year endowment policy?
A 10-year endowment policy is a life insurance plan that lasts for ten years. It combines life coverage with savings. If the policyholder survives the term, they receive the sum assured plus any bonuses. The nominee gets the sum assured if they pass away during the term. This policy helps build savings while providing financial protection.
What is the difference between ULIP and an endowment plan?
A ULIP (Unit-Linked Insurance Plan) combines insurance with investment in market-linked funds, offering higher potential returns but with associated risk. An endowment plan provides a guaranteed sum assured along with bonuses, offering more stability and lower risk but generally lower returns.
What is an example of an endowment policy?
Consider a 20-year endowment policy with a sum assured of ₹5,00,000 and an annual premium of ₹25,000. At maturity, you would receive the sum assured of ₹5,00,000. If the policy includes bonuses, for instance, accumulating ₹10,000 per year, the total bonuses over 20 years would be ₹2,00,000, making the maturity amount ₹7,00,000. If the policyholder passes away during the term, the nominee will receive the sum assured plus any bonuses accrued up to that point. Note that not all endowment policies include bonuses, so check the specific terms of your policy.
What is a permanent endowment?
A permanent endowment is a long-term life insurance policy offering coverage and savings. It provides a sum assured and accumulated bonuses upon the policyholder’s unfortunate death. Unlike temporary endowments, which have a set term, permanent endowments are intended to provide benefits throughout the policyholder's entire life.
What is the difference between an endowment and a money-back policy?
An endowment policy combines life coverage with savings, offering a lump sum payout at maturity or upon the policyholder’s death. On the other hand, a money-back policy provides periodic payouts at set intervals during the policy term, in addition to a final lump sum at maturity or in case of death. While endowment policies focus on a single payout, money-back policies offer interim returns throughout the policy term.
What should I consider when selecting riders for my endowment plan?
When selecting riders, consider your individual risk profile and financial needs. Riders with critical illness or accidental death can enhance coverage but may increase premiums. Before deciding, evaluate each rider's additional benefits and how they align with your overall financial protection strategy.
Are there any tax implications if I withdraw from an endowment policy?
Yes, withdrawing from an endowment policy may have tax implications. The amount withdrawn might be subject to tax, depending on the policy's terms and current tax regulations. Generally, the maturity proceeds are tax-exempt under Section 10(10D) if certain conditions are met, but it's wise to consult with a tax advisor to understand the specific tax consequences.
How do I choose the best endowment plan type for my needs?
To compare endowment plans, evaluate factors such as premium costs, policy terms, maturity benefits, bonus structures, and insurer reliability. Consider your financial goals, risk appetite, and the plan’s alignment with your needs. Reviewing policy brochures, consulting with insurance advisors, and comparing features can help you choose the best plan.
Can endowment plans be used for retirement planning?
Yes, endowment plans can be used for retirement planning. They offer a disciplined savings approach and guaranteed returns, which can provide a steady income during retirement. You can accumulate a corpus to support your retirement needs by selecting an appropriate policy term and investment strategy.
What are the different types of endowment life insurance policies?
Endowment insurance comes in various forms, each designed to meet specific financial goals. These include With-Profit Endowment, Non-Profit Endowment, Unit-Linked Endowment, and Low-Cost Endowment. Each type varies in risk, return, and premium structure, allowing you to choose one that best suits your needs.
What is the difference between term insurance and endowment insurance?
Term insurance and endowment insurance serve different purposes. Term insurance provides pure life coverage with no maturity benefits, making it a cost-effective option. Whereas an endowment plan combines life coverage with savings, offering a lump sum payout upon maturity or in the event of the policyholder's death. The choice between the two depends on whether you prioritize pure protection or savings along with protection.
How does the investment component work in a unit-linked endowment plan?
A unit-linked endowment plan allocates a portion of the premiums to market-linked investments such as stocks or bonds. The returns on these investments depend on market performance. The guaranteed sum assured is provided, but additional returns are linked to the investment's success. This plan combines insurance coverage with the potential for higher returns based on market conditions.
How does the choice of policy term impact my endowment plan?
The policy term determines the duration for which premiums are paid and when the maturity benefit is received. A longer policy term may result in higher maturity benefits and potentially more bonuses, but it also means paying premiums over a more extended period.
Conversely, a shorter term requires fewer premium payments but might offer lower benefits. It's essential to align the policy term with your financial goals and needs.
Other Important Articles Related to Endowment Plan
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
Latest News
Read More
Renew & Download Policy Document, Check Challan, Credit Score, PUC & more
Anytime, Anywhere. Only on Digit App!
Rated App
Rated App
Rated App
Rated App
Scan to Download
