What is an Endowment Plan? A Beginner's Guide

25-August-2021 |

There is a lot you can do with your savings – make a retirement plan, fund your children's ambitions, buy a dream home, and so on. But that means finding an appropriate savings tool that will help you achieve these goals. This is where an endowment life insurance policy comes into the picture. And the best part is that you enjoy the benefit of a life cover while investing your premiums for a future savings fund.

An endowment policy also helps you develop a disciplined approach to creating a savings fund since you contribute towards this corpus regularly over the long term.

Different life insurance products cater to different needs and financial goals. As a first-time endowment policy buyer, there are some things one should know about endowment insurance. Here is a guide that can help you understand endowment policies if you are looking out for a suitable savings plan.

 

What is an Endowment Plan?

An endowment plan is a type of insurance plan that offers life insurance cover as well as long-term savings with assured returns. A lot of policy buyers opt for endowment plans if they wish to save money for their future financial goals.

Additionally, an endowment plan offers:

  • A death benefit: In the event of the policyholder's untimely demise before the end of the policy term, the sum assured and the accumulated bonuses2 (if any) are paid to the nominee/beneficiary.

  • A survival benefit: Should the policyholder outlive the policy term, then they are entitled to receive the sum assured as well as the accumulated bonuses (if any) from the insurer.

 
Features and Benefits of an Endowment Plan

Endowment plans are good insurance policies if you wish to enjoy the dual benefits of life cover and long-term guaranteed1 returns in a single policy.

  1. Death benefit + survival benefit: Under endowment insurance, if the insured meets an untimely demise, their beneficiary is entitled to the sum assured. However, if the policyholder outlives the policy term, then they receive the accumulated savings corpus (plus bonuses, if any) as a maturity benefit.

  2. Choice in premium payment frequency: The policyholder can choose the frequency of the premium payment as per the policy they have opted for. The payments can be made on a monthly, quarterly, half-yearly, or annual basis.

  3. Flexible Cover: The coverage of an endowment plan can be extended or enhanced with the help of riders#, such as total permanent disability, accidental death, critical illness, and so on. These riders are included in the base plan if the policyholder feels the coverage should be improved.

  4. Tax* Savings: A policyholder can avail of the tax benefits for their endowment plan as per the applicable tax laws. The premium payments of the policy are eligible for tax benefits under Section 80C, while the maturity amount and death payout are eligible for tax benefits under Section 10(10D) of the Income Tax Act, 1961.

 
How Does an Endowment Policy Work?

Endowment plans offer a combination of savings as well as insurance cover, providing a life cover to you while also enabling the accumulation of funds over a specified time period. For instance, the Tata AIA Life Insurance Guaranteed Return Insurance Plan (UIN: 110N152V08) also offers a joint-life option, wherein under the Whole Life Income benefit, the policyholder can also avail of life cover for their spouse.

The policy tenure is decided as per the policy terms and conditions. On maturity, the insured gets the sum assured and probably the applicable bonuses2. However, in case the policyholder passes away during the tenure of the policy, the sum assured as well as the applicable bonuses are received by their beneficiaries.

 

Who Should have an Endowment Plan?

Different types of insurance policies are useful for people with varying needs, savings and investment goals, and so on. One would need an endowment policy if –

  • They are interested in accumulating an assured financial corpus to take care of their definite financial needs at a later date.

  • They want to avail of guaranteed1 savings as well as a life insurance cover from their insurance policy.

  • They want to receive a lumpsum amount of their savings at a pre-determined time.

 
What to check before buying an endowment policy?

Here are a few simple parameters that can help a first-time policy buyer understand how to buy a new endowment plan:

  • The policyholder's goals: It is necessary to gauge your requirements and financial goals, especially the long-term goals, before purchasing an endowment plan. Since these plans provide significant returns, they are well-suited if you seek to meet financial goals such as retirement planning, your child's higher education or their marriage, the purchase of a new car, and so on in the later years.

  • Features of the plan: There are different types of an endowment policyand they vary in terms of the coverage they offer, the savings or investment option, the premium payment modes as well as the options in riders#. Before buying one, always examine and compare different plans and choose one that is the closest to meeting your needs. For example, you can opt for a regular premium plan only if you have a steady and regular flow of income. A single premium plan would be better for someone whose income is not fixed.

  • The need for an endowment plan: Most policyholders choose endowment plans for the assured returns they offer on the savings over the long term. These savings can help one meet some major expenses and financial emergencies further on in life. However, many others who seek life insurance cover along with savings are also in favour of endowment plans. There are also those who avail of such plans because of the tax* benefits offered. However, it is not wise to purchase life insurance plans solely for tax* benefits.

 
Conclusion

When one needs to save money for important expenses in the future while taking a disciplined approach to savings, endowment plans are a great way to build a monetary corpus. Picking out such a plan is a smart choice, especially when one's monthly salary may not be enough beyond covering daily household and personal expenses.

Tata AIA Life Insurance offers a host of Savings Solutions that offer the dual benefit of life cover and long-term guaranteed1 savings. You can check out the Tata AIA Life Insurance Endowment Plans to avail of multiple benefits such as guaranteed1 returns, a wide range of riders#, flexible premium payment modes and frequencies, loan against the policy and tax benefits as per the prevailing norms.

Get in touch with us today for more details.

 

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Disclaimer
  • 1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry

  • 2These bonuses are not guaranteed in nature. The Company may declare Cash Bonus rate annually in advance. The Cash Bonuses if declared, will be applicable provided all due premiums have been paid.

  • #Riders are not mandatory and are available for a nominal extra cost. For more details on the benefits, premiums and exclusions under the riders please refer to the Rider Brochure or contact our Insurance Advisor or visit our nearest branch office

  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.