What is an Endowment Policy?
A traditional insurance plan pays out a lump sum assured in the event of the death of the policyholder. The beneficiaries/dependents/nominees of the life insured receive a benefit (called a death benefit) if the worst should come to pass for the insurance holder. An endowment plan works the same way, but has an additional clause that states that a lump sum payment will be made to the insurance holder if he or she survives till the end of a specified period known as the “maturity period”, “endowment policy term” or “survival term”. There are variations to the payout clause in endowment policies – some companies have a lump sum payout on the detection of a critical illness or other life-changing events.
Types of Endowment Policy
Unit Linked Endowment Plan- This is a fixed-term saving plan which also provides the benefit of life coverage. Under this plan option, the premium paid by the insured is bifurcated into different units held under a particular investment fund, as chosen by the insured person. The return on investment entirely depends on the market performance of the fund. This plan option is best suitable for individuals who have a high-risk appetite and who want to gain a high return on investment.
Full/With Profit Endowment- Under this plan option, the basic sum assured amount equal to the death benefit is provided to the insured person. This amount is guaranteed from the starting of the policy. Moreover, the final payout paid to the insured is comparatively higher, as it includes the total sum assured amount plus additional bonus (if any).
Low-Cost Endowment- This type of endowment plan is specifically designed to help the insured accumulate a fund for the future, which has to be paid after a particular time period. Generally, low-cost endowment plans are used for the repayment of mortgages, loans, etc. In case of demise of the insured during the policy term, the target amount is paid as a minimum sum assured to the beneficiary of the policy.
Non-profit Endowment- In non-profit traditional endowment policy, a sum assured amount is paid to the policyholder as maturity benefit or to the beneficiary of the policy as a death benefit.
Guaranteed Policy- Endowment insurance policies guarantee that a sum of money will be given to you or your beneficiaries whether you live until the insurance policy matures or you die early. The face value of an endowment policy will be given to the policyholder on the "maturity date" or to the beneficiary of the life insurance policy in the event the insured dies. The bonuses under the policy are not guaranteed. Thus with an endowment policy, you get the dual advantage of guaranteed policy benefits and a non-guaranteed bonuses.
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