Updated on October 4, 2023
Endowment plans are a common form of insurance policy. The meaning of this term and its related details are mentioned below.
Definition of Endowment in Insurance
An endowment plan is a type of life insurance policy that combines insurance coverage with savings or investment features. It provides financial protection to the policyholder’s beneficiaries in case of the insured’s death while also offering a maturity benefit if the policyholder survives the policy’s term. Endowment plans are often used for long-term financial goals, such as saving for a child’s education, buying a home, or retirement planning.
What are the key aspects of Endowment Plans?
Dual Purpose – Endowment plans offer life insurance coverage and savings, providing both a death benefit and maturity benefit.
Fixed Term – These policies have a predetermined term, typically 10, 15, 20, or 30 years, with regular premium payments.
Maturity Benefit – The policyholder receives a lump-sum maturity benefit at the end of the term, comprising the sum assured and accrued bonuses.
Death Benefit – In the event of the policyholder’s death during the term, beneficiaries receive a death benefit for financial protection.
Premiums – Policyholders make regular premium payments, influenced by factors like age, health, coverage, and term.
Bonuses – Endowment plans may offer bonuses,and enhancing returns, such as reversionary and terminal bonuses based on the insurer’s financial performance.
What are the advantages of endowment plans?
A few advantages of endowment plans include,
Financial Security – Endowment plans provide financial security to policyholders and beneficiaries by offering a lump-sum amount upon policy maturity.
Savings and Investment – These plans promote disciplined savings and investments by allocating a portion of the premium to a savings component, aiding in wealth accumulation.
Tax Benefits – Endowment plans often come with tax benefits on premiums and benefits under Sections 80C and 10(10D) of the Income Tax Act, making them tax-efficient investment choices.