Benefits of Endowment Plans
Last Updated : March 8, 2022, 6:24 p.m.
An endowment plan is a type of insurance plan by which you can save money for the future and secure your loved ones in case of your absence. This savings cum life insurance plan will provide a lump sum money to your nominee in case you die during the policy term. And if you’re alive till the end of the policy term, a maturity benefit shall be payable to you. Read this page below and know what more endowment plans can do for you.
What are the Advantages of Buying Endowment Plans?
The best part about an endowment plan you will get the returns as promised at the time of policy inception regardless of the market up and down. Let’s check out the list of benefits the insurance company will provide you under an endowment plan.
Death Benefit of Endowment Plans
If you’re unprepared for the unfortunate events, get an endowment plan. Because this will help your family get financial protection in case you die naturally or due to an accident. The insurance company will pay the basic sum assured as chosen by you at policy inception. And the nominee can get the same if the policyholder pays all the premiums till the date of his/her death.
Maturity Benefit of Endowment Plans
When you’re alive till the end of the tenure, the insurer will provide you the basic sum assured. And you can get the same by continuing the policy without any break and paying the premium in full.
Bonuses During the Policy Term
Along with the above benefits, you’ll get bonuses that the company declares. Check out the type of bonuses available during the policy term.
Simple Reversionary Bonus – At the end of every policy year, the company declares a bonus as a percentage of your sum assured. And this type of bonus is not guaranteed. Because it will depend on the profits of the insurance company. Also, you can get the bonus only if you’ve paid your due premiums. If the endowment plan is in a paid-up status, no simple reversionary bonuses will be available. However, if there are any accrued bonuses before the reduced paid-up status, the same shall be payable either on death or maturity, whichever occurs earlier.
Terminal Bonus – In case of your death, the company will provide a terminal bonus to your nominee along with the above-mentioned death benefit, provided you pay all your due premiums for at least ten years. The company declares bonus for all policies maturing, and you can get the same as a percentage of the sum assured on maturity. The bonus isn’t payable if the endowment plan attains the reduced paid-up status or surrender.
Rider Options
You can customize your endowment plan as per your financial needs. The following are some of the common optional riders offered by the insurance company.
Surgical Benefit Rider – The company provides a lump sum amount to cover your surgical expenses as listed in the policy schedule, such as surgeries including Open Heart surgery, Kidney Transplant, Cornea transplantation, Transplant of Lungs, etc.
Income Benefit Rider – For a monthly benefit of 1% or 2% of the sum assured, get this rider. In this, the company will pay an income from the date you add this rider till death, the end of the rider term or 10 years whichever is later.
Accidental Death and Total and Permanent Disablement Rider – Additional sum assured is payable in case of accidental death. And in case you’re disabled, the company will waive off all future premiums.
On the payment of an additional premium over the base premium, you can get the riders on your endowment policy. You can choose a rider on the commencement of the policy or any policy anniversary during the policy term. The frequency of your rider premium will be the same as the frequency of the base premium.
The rider sum assured shouldn’t be higher than the sum assured of the base endowment plan. It should not exceed 30% of the premiums paid under the base plan or any percentage as specified in the schedule. Upon the discontinuance, surrender or forefeiture of the base policy, all the rider benefits will terminate.
Option of Policy Surrender
If you don’t wish to continue the endowment plan, the insurer allows you to surrender the policy. But this will be available after a certain period of coverage. An endowment policy acquires a surrender value, provided you pay the first two annualized premiums in full.
The surrender value of your endowment plan is based on the year of surrender and the policy term. The payable value will be higher than the guaranteed surrender value (GSV) or special surrender value (SSV).
GSV is equal to 30% of the total amount of premiums paid, excluding the first year and extra premium if any. Whereas the SSV is equal to a special surrender value factor, decided by the insurance company, multiplied by the paid-up sum assured. In this, the Paid-Up Sum Assured = Base Sum Assured * (No. of premiums paid/Total no. of premiums payable)
Tax Benefits
An endowment plan offers you tax benefits on your payable premiums as well as the main received benefits under Sections 80C and 10D of the Income Tax Act, 1961, respectively. 80C tax deductions are, however, capped to INR 1.5 lakh a year.
