There are a number of investment options available and it can be quite difficult choosing one that best suits you. An endowment plan is one of these options that you can choose if you are looking for an investment that would give you a guaranteed payout. Additionally, endowment policies come clubbed with a life cover.
What is an Endowment Policy?
An endowment policy is a life insurance plan that serves the dual purpose of providing the policyholder with a life cover in addition to serving as an investment instrument. Endowment policies work by providing the policyholder with a life cover for a specific period of time. Part of the premium that is paid towards the policy is invested in instruments that aid wealth creation.
All endowment plans come with a fixed tenure. During this period, the policyholder makes regular contributions towards the plan and receives a lump sum payout in the form of the sum assured when the policy matures. In addition to the lump sum payout, the policyholder also receives any bonuses that have been accrued. In the event where the policyholder dies before the plan reaches maturity, the sum assured as well as the bonus is paid out to the nominee. The bonus from an endowment policy is paid for the number of years that the policy was active.
Types of Endowment Policy
Unit-Linked Endowment Plans
Unit-linked endowment plans are those where part of the premium is invested in unitized insurance funds. With this type of plan, the policyholder gets to choose the type of units in which their premium is invested and the proportion of the investment as well. The returns earned from this type of investment depends entirely on the performance of the fund in which the investment is made.
Low-Cost Endowment Plans
As the name suggests, the premium amount to be paid towards this type of endowment plan is lower when compared to other types of endowment plans. With low-cost endowment plans, the investment is made in a manner that will assure a particular amount to be paid out as a death benefit.
Profit Endowment Plans
Profit endowment plans are those where the terms of the policy ensure that a particular sum will be paid out when the policy reaches maturity or on the death of the policyholder. However, the amount that is guaranteed tends to increase as the policyholder earns bonuses from the investments made.
Non-Profit Endowment Plans
Non-profit endowment plans are those where the sum assured to be paid out on the death of the policyholder or on maturity of the policy is chosen at the time of the initial investment.
Benefits of an Best Endowment Policy
Endowment policies come with a number of benefits to the policyholder. The following is a list of some of these benefits:
When compared to other types of investments that are made in the equity market, those made through an endowment policy are relatively low-risk. This is due to the fact that the amount to be paid out on maturity of the plan is predefined and the policyholder will receive a guaranteed payout regardless of the performance of the funds in which the investment has been made.
Premium payment modes
The premium payment modes for an endowment plan are flexible and policyholders can choose between a long term and short term premium payment. Policyholders can continue to enjoy the benefits of their endowment plan if premium payments have been completed for a minimum tenure as stated in the policy terms.
Most individuals choose to invest in an endowment policy so as to meet a specific financial goal. Unlike other investments, the policyholder is guaranteed a certain amount when the policy matures which, in turn, provides the policyholder with some amount of financial security for the future.
Investment in an endowment policy provides the policyholder with a major tax benefit. Payments made towards the premium of the policy provides the policyholder with tax benefits under Section 80C of the Income Tax Act, 1961. Additionally, policyholders also receive a tax deduction for the amount paid as the death benefit under Section 10D of the Income Tax Act, 1961.
Policyholders can increase the coverage on their endowment plan through the addition of riders. Riders such as accidental death, critical illness, and hospital cash are some of the many riders that can be added to an endowment plan.
Insurance providers offer policyholders who have opted for profit endowment plans a certain amount as a bonus. These bonuses are usually of 2 types – reversionary bonus and terminal bonus. A reversionary bonus is paid out to the nominee of the plan in addition to the sum assured to be paid on maturity of the policy. A terminal bonus is the additional agreed upon amount that is paid out to the policyholder or nominee to the policy when the policy matures.
Why You Should Buy an Endowment Policy?
Endowment plans are best suited for those individuals who have a specific long-term goal in mind. Some of these goals include mortgage payments, funding a child’s higher education or marriage. It is particularly beneficial to individuals who have a regular source of income and are capable of making regular premium payments. Furthermore, these plans help those individuals who are looking to invest in equity instruments but have a low-risk appetite. The relatively risk-free nature of the investments made through an endowment plan adds to its appeal.
Additionally, endowment plans are long-term investments and provide the policyholder with a disciplined approach to savings for an extended period of time. Individuals who have a semi-regular source of income can also invest in endowment plans by opting for the flexible premium payment options.
Best Endowment Policies in India
Here are some of the best endowment policy available in India for 2019.
|Endowment Plan||Entry Age||Maturity Age||Policy tenure||Sum Assured (Minimum)|
|Reliance Life Insurance Super Endowment Policy
|8 years to 60 years||22 years to 75 years||14 years/ 20 years||Rs.1 lakh|
|LIC New Endowment Policy
|90 days to 50 years||18 years to 60 years||10 years – 20 years||10 times the annualised premium
105% of the total premium paid
|Kotak Classic Endowment Policy
|0 to 55 years||18 years to 75 years||15 years to 30 years||11 times the annual premium|
|SBI Life Shub Nivesh Endowment Policy
|18 years to 60 years||65 years/100 years (for endowment with whole life option)||5 years to 30 years||Rs.75,000|
|Bajaj Allianz Save Assure Endowment Policy
|1 year to 60 years||18 years to 75 years||15 years/ 17 years||Rs.1 lakh|
|IDBI Federal Incomesurance Endowment Policy
|18 years to 55 years||3/8/13 years to 65 years for the insured
18 years to 60 years for the policyholder
|10 years/ 15 years/ 20 years/ 25 years||Rs.10,000|
If you have decided that an endowment plan is your most suitable investment option but are not sure of which plan to invest in, the following list may help:
Here are explanations of above best endowment policy in India.
Reliance Life Insurance Super Endowment Policy
Policyholders are required to pay the premium for only half the tenure that they choose. The plan can be customized using riders. Policyholders can also avail a loan against their policy.
LIC New Endowment Policy
The policyholder has a choice of investing in one of 4 types of investment funds. Policyholders have the benefit of choosing their premium payment term and the basic sum assured is equal to 10 times the annualized premium.
Kotak Classic Endowment Policy
Policyholders can select the sum assured based on their requirement. On maturity, policyholders receive the sum assured in addition to the bonuses accrued. Policyholders can also avail loans against their policy.
SBI Life Shub Nivesh Endowment Policy
The plan provides the policyholder with the option of creating savings while also receiving a life cover. Additionally, policyholders can also choose their premium payment term.
Bajaj Allianz Save Assure Endowment Policy
Policyholders can choose the sum assured and the policy tenure. Premium payments for the last 5 years of the policy tenure is waived. The plan permits policyholders to receive payouts from their plan in monthly installments over a period of 5 years or 10 years.
IDBI Federal Incomesurance Endowment Policy
The plan has been designed to help policyholders reach their financial goals. Policyholders can choose from premium payment options of 5 years, 10 years or 15 years. Once the premium payments have been completed, the policyholders receive an annual payout at the end of every year.