Life insurance as we all know is security for the future. With human life facing many uncertainties, if’s and but’s, and sudden turning points, people always go for some fall-back in life, in case of any unfortunate events. As of today, there are enormous innovative insurance plans introduced for buying. Yet the age-old practice of insurance started in India, as the coverage for life by paying a certain amount of premium on an “endowment policy”, and getting back the sum assured on maturity.
This practice continues even today and is preferred by a major chunk of prospective insurance buyers. Here let us see what an endowment policy is all about, what the benefits are and who should go in for them.
Definition of endowment policy:
An endowment policy is basically a life insurance policy. This helps the policy holder save money systematically, in order to meet a future goal in life. The policy holder can get back the insurance premiums paid, after the end of the tenure of the policy in a lump sum (with accrued bonuses, if any declared from time to time). In the event of the demise of the policy holder during the tenure, the nominee gets the total sum assured (irrespective of the amounts of premiums paid).
As such an endowment policy can be defined as an insurance policy that provides life coverage, and paves way for systematic saving of money to get back a lump sum on maturity.
Types of endowment policy:
Broadly, there are two types of endowment policy – such as Endowment Without Profit; and endowment with profit. Within these two classifications, there are many endowment plans introduced by private sector insurance companies nowadays. These plans aim at children’s education, retirement and whole life protection etc.
Endowments without profit policies are those term insurance plans, which pay only the sum assured to the nominee, in case of death of the policyholder. There are no other “profits” like bonuses.
Endowment with profit policies payback on the maturity of the policy, full sum assured with bonus (profits of the Insured company shared with the policy holders, from time to time) or alternatively the total sum assured plus bonuses to the nominee in the event of the demise of the policy holder.
Precisely, an endowment policy is a guaranteed policy of the sum assured, either on the maturity of the tenure to the policy holder or to the nominee if the policy holder does not survive the tenure.
Who should consider buying an endowment policy?
From the exact definition given above for an endowment policy, it is clear that this is a plan for a disciplined saving of the income. Monthly salaried employees have a standard income, almost similar every month; small businessmen who earn a steady income from their business and in times of emergencies they don’t have a fall-back for extra-money; self-employed professionals like doctors and lawyers etc. have no savings for future, like provident fund or gratuity etc.
These people would like to save in a risk-free investment, and get back the total sum after a particular period to meet their life-expenses. They need a guaranteed return (even though it is less than other plans which can yield high returns, but with higher risks for losing the very capital like share market etc.) of their saved money all along.
In case of an emergency, these people can take a loan from their own savings with nominal interest. They might have future plans for educating their wards in higher studies; building a house of their own; marriage of their daughter and living a worry-free retired life etc. All these plans can be fulfilled if they take an endowment policy for the proposed period of their future plans.
The main attraction here is even if they are not there to fulfil their plans, the insurance company will pay the entire sum assured to the family members, which can provide some solace in such a juncture.
Benefits of an endowment policy:
- Guaranteed return on their investment made in smaller sums periodically – either on maturity or premature death
- Security for loved ones if some unfortunate event happens
- Goal-based saving made possible and the Goals can be fulfilled in any case by the Sum Assured
- Loans can be taken at nominal interest from their own savings
- There are many riders available for an endowment policy such as – Accidental death benefit double; total or partial disability benefits; family income benefit; Waiver of premium benefit; Critical illness benefit and hospital cash benefit etc.
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