Endowment Plan

Endowment Plans not only offer you protection but also helps you to save your money and help it grow over a period of time. You get a lump-sum amount called the maturity benefit after the policy term comes to an end.

Why do you need an Endowment Policy?

The sum assured offered by a term insurance policy is paid only if the insured person dies within the policy term. However, this is not the case with an endowment policy. A plan that gives you both maturity benefits and death benefits is better in case you outlive the policy. An endowment policy not only helps your family in case of your demise, but also helps you take care of large expenses that come later in life, such as education of children or grandchildren, children’s wedding, medical procedures, retirement needs, buying a house, etc.

Features and Benefits of Endowment Policy:

Some of the notable features and benefits of endowment policies are listed as follows:

• Death as well as survival benefits: You get sum assured and bonuses both in case of the death of the policyholder before the policy matures and in case of the policyholder outliving the policy.
• Higher returns: An endowment policy helps you not only to provide for your family in case of your untimely demise, but also to make higher savings for the future. Whether it is death benefit or survival benefit, the payout with an endowment policy can be much higher than that of a pure life policy.
• Premium payment frequency: You can make regular, limited or single payments of premiums depending on the policy you choose. You can also choose to make payments in frequencies of monthly, quarterly, half-yearly or yearly.
• Flexibility in coverage: You can add riders such as accidental death and total disability or critical illness, to the policy and increase your life cover. Some policies also give you premium payment waiver in case of critical illnesses or permanent disability.
• Tax benefits: You get tax concession on both premium payments (under Section 80C) and the final death or maturity payouts (under Section 10(10D)).
• Low risk: Endowment policies are safer than other types of investments such as ULIPs or mutual funds because the amount is not directly invested in the stock market or equity funds.

Types of Endowment Policies:

The following types of endowment policies are available in the Indian market currently:

• Participating plans: These are endowment plans in which the policyholder is a participant in the insurance company’s growth. This means that the company will give a small portion of its profits to the policyholder along with death or maturity benefit in the form of bonus.
• Non-participating plans: These are policies in which the policyholder does not get a part of the company’s profits. Non-participating schemes do not pay any additional bonuses to the policyholder along with the maturity or death benefit.
• Whole life or full endowment policy: This kind of policy covers your entire life – up to 100 years – with a basic sum assured. Bonuses are added to the death or maturity benefits as and when your account makes profits.
• Money-back plans: Money back endowment plans ensure that you get regular returns from your investment instead of a lump sum at the end of the policy period or at death. You may get money back every year, or every 5 years, during the last 5 years of your policy, or other options, depending on the terms of the policy.

Other than this, endowment policies can be differentiated based on payment of premiums as given below:

• Regular Pay: Under this, you need to make premium payments regularly as long as the policy is active and the policyholder is alive. The frequency can be as chosen by you – every month, every three months, every six months or once a year.
• Limited Pay: Here, you need to pay only for a specified number of years out of the total policy tenure. This could be 5 years, 7 years, 10 years or 15 years, depending on the insurer and the product.
• Single Pay: When you need to make just one payment towards your plan, it is known as a Single Pay policy.

Riders for Endowment Policy:

Riders are extra benefits that can be added to an insurance policy at a slightly higher premium. Different insurers offer different set of riders for the endowment policy. Among the most common riders are:

• Accidental death benefit: This rider will add an extra sum to the death benefit payout if the policyholder dies in an accident whether inside the house or outside.
• Total permanent disability benefit: If the policyholder becomes permanently disabled and is unable to earn an income, then this rider will ensure that you get the sum assured and bonuses over a period of a few years in installments. This will help you have a regular income for some time even if you are unable to go to work anymore.
• Critical illness benefit: This rider will cover severe diseases such as cancer, serious heart ailments, kidney failure, major organ transplant, stroke, paralysis, multiple sclerosis, Alzheimer’s disease, etc. You will get a lump sum when you contract one of these illnesses to help you with the treatments. Some insurers also waive off your future premiums in case you are diagnosed with a critical illness.
• Premium waiver benefit: This rider can be added to get a waiver of premium payment in case of a severe disease or temporary/permanent disability. You will not have to pay the future premiums, and at the same time you won’t lose any benefits of the policy.
• Term assurance rider: Most of the top insurers in the market offer a term assurance rider along with an endowment policy. If the policyholder dies unexpectedly during the policy term, this add-on cover provides lump sum benefit to policyholders similar to a regular term insurance cover.

Additional Bonus on Endowment Policy:

There are several kinds of bonuses that are associated with endowment policies. Every insurer may not give all these bonuses, and each insurer may have a separate jargon for the bonus given. Let us look at some common bonuses in brief:

• Simple Reversionary Bonus: This is a bonus that is accumulated in the policyholder’s account every year until maturity or death. This bonus is calculated on a yearly basis and is based on the sum assured. It is not compounded yearly and merely adds up to a final lump sum. For example, if you are receiving a simple reversionary bonus of Rs.40 per Rs.1,000, and your sum assured is Rs.2 lakh, then the total bonus of this kind at the end of policy or death would be Rs.8,000.
• Compound Reversionary Bonus: This bonus is a compounded amount based on all the bonuses that you receive throughout the policy period. Not all plans offer a compound reversionary bonus.
• Interim Bonus: This is an amount added to the policy account in case the policyholder dies or the policy matures before the annual bonus is declared. Interim bonus may be lower than the annual bonus, and is paid out to ensure that the insured person does not lose any money merited by them.
• Terminal Bonus: This is a one-time amount added to the policy at the end of its tenure or at the time of disbursing the death benefit
• .Additional Bonus: This is paid in participating policies which include a portion of the insurer’s profits for the year. This additional bonus is a small percentage of the total profits that an insurer makes in a given year.

Claims Process :

To make a claim on an endowment policy, you need to follow the below-listed steps:

1. Fill in the Claims Form. This will be available either on the insurer’s website, or with your insurance agent. The form has to be duly filled and submitted to the insurer via email, fax, snail mail or through direct submission at the company’s office.
2. Attach all the documents that would support your claim. For example, if it is a death benefit claim, you need to provide the death certificate of the policyholder, and identity and address proof of the nominee.
3. Once your request is received at the insurance company’s office, you will get a confirmation from the company.
4. The Claims Cell of the insurance company will review your claim and verify the documents. If any further documents or investigation is/are required, an executive will approach the policyholder/nominee.
5. If your or your nominee’s mobile number is registered with the insurer then you will receive regular updates on the status of your claim.
6. If your claim is approved, then the money will be disbursed electronically through bank transfer, or via cheque. Each insurer will have its own timeline on claim settlement.
7. If your claim is rejected, the insurer will send you a rejection letter along with reason for the denial.

If you are making a maturity benefit claim, things would be easier, as the company itself will remind you about the upcoming maturity of your plan. You will need to confirm identity documents and the company will send you a voucher or discharge form, which you have to sign and return. You will need to give back the original policy document and send a cancelled cheque or passbook copy to confirm your bank account number.