Pure endowment plans are life insurance plans that give the policyholder a guaranteed sum assured at policy maturity if they survive the policy term. They are a low-risk savings tool that does not provide a death benefit or maturity benefit to the policyholder’s family if the policyholder dies during the policy term.
Indian investors can choose between various kinds of financial avenues to meet to diversify their portfolio and ensure a comprehensive financial plan.
Of these plans, a pure endowment policy is one of the options worth considering to strengthen your financial safety net. These plans are generally clubbed with a life insurance plan to give you the benefits of protection + assured returns. Pure endowment insurance plans help you build a corpus to cater to your financial needs in the coming years.
Let us find out more about pure endowment life insurance and its features and benefits.
Pure Endowment Policy Meaning
A pure endowment plan is a policy where the insurance company provides a policy payout to the policyholder at the end of the policy term. The payout is a predetermined amount and is provided as a lump sum amount at the completion of the policy term.
The policyholder must survive the policy term to receive the sum assured under a pure endowment plan. There are no beneficiaries under a pure endowment plan because the plan does not cover the life of the insured individual. Therefore, no death benefit or payout is provided to the insured’s family if the insured dies during the policy term.
You pay the premiums during the policy term and receive a lump sum amount when the policy term is completed.
Most life insurance companies combine pure endowment plans with other life insurance products to ensure protection + savings. For instance, combined with term insurance you get a term plan with return of premium benefit. As guaranteed returns savings insurance plans, policyholders get the benefit of life insurance + assured returns + regular payouts.
A pure endowment plan is a low-risk savings investment plan that helps you achieve various financial goals at different life stages, such as your child’s education and marriage.
Features of Pure Endowment Life Insurance
Maturity: A pure endowment plan pays you only if you survive the policy term. You can use this maturity amount as a retirement fund or to meet your financial responsibilities. Along with the guaranteed1 amount at maturity, you may receive additional bonuses and benefits, depending on your policy terms.
Savings: A pure endowment policy is a saving tool. You must pay the policy premiums regularly when the policy is active and receive a lump sum amount then the policy matures. Since the policy term is usually long, it acts as a savings tool for you.
No death benefit: A pure endowment plan does not provide any maturity benefit or death benefit to the family members if the policyholder dies during the policy term. However, you may combine it with a traditional life insurance policy, such as term plans to add the death benefit feature to your policy.
Nomination facility: Unlike a traditional life insurance policy where the policyholder assigns a nominee to receive the policy benefits, there is no need to assign a nominee for a pure endowment plan since the plan does not offer any death benefits or maturity benefit in the case of the policyholder’s death during the policy term.
Premium payment: You must pay the pure endowment policy premiums regularly and on time to keep the plan active.
No surrender value: You cannot surrender a pure endowment plan before the completion of the plan’s term in exchange for its cash value.
Benefits of Pure Endowment Insurance
Guaranteed payout: Pure endowment plans are low-risk investments since they provide a guaranteed payout at the end of the policy term.
Long-term savings: These plans usually have a long investment duration and are an excellent tool for long-term saving. Pay the policy premiums regularly throughout the policy term and receive a lump sum amount when the policy matures. It helps inculcate a routine and disciplined saving habit for a long duration.
Tax* benefits: You can claim tax* benefits under Section 80C of the Income Tax* Act for the premiums you pay towards your pure endowment plan.
No market risk: Pure endowment plans protect your investments from market risks. These plans are not affected by market fluctuations and offer guaranteed returns as stated under the policy terms.
Drawbacks of a Pure Endowment Plan
Pure endowment plans do not offer any death benefit to the policyholder’s family in the event of the policyholder’s death during the policy term.
When the policy is active, you cannot terminate or surrender a pure endowment plan in exchange for its cash value. Moreover, you cannot make premature withdrawals from a pure endowment plan during its term.
The returns on a pure endowment plan are lower than other investment options like stocks and mutual funds.
Pure endowment plans allow you to save money in a disciplined manner over a long duration of time. These low-risk investment tools also offer tax* benefits on the premiums you pay towards a pure endowment plan. However, these plans only provide a lump sum if you survive the policy term and no death benefits for the plan beneficiaries.
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