Endowment Policies: Benefits and How to Select the Right Plan
When it comes to securing your financial future, there are countless options available today. Yet, one solution that often goes under the radar—despite offering a unique combination of insurance protection and guaranteed savings—is the endowment plan. These policies provide a secure foundation for achieving long-term goals while offering peace of mind through life coverage.
Whether you’re planning for your child’s education, a dream home or simply want to build a disciplined savings routine, endowment plans can help you accomplish all that and more.
This post will explore the benefits of endowment policies and how to select the right savings plan for your financial journey.
What is an Endowment Plan?
An endowment plan is a life insurance product that offers the dual benefits of life protection and savings. If the policyholder passes away during the term, the nominee receives the sum assured plus any applicable bonuses. If the policyholder survives the policy tenure, they receive a maturity payout, which includes the sum assured and accumulated bonuses or additions.
In short, it’s a disciplined savings plan wrapped in the security of a life insurance policy—making it a low-risk, long-term investment for risk-averse individuals.
Key Benefits of Endowment Policies
1. Guaranteed Death and Maturity Benefits
An endowment policy guarantees a lump sum either on death or maturity. This ensures financial stability for your loved ones and helps you reach long-term savings goals like retirement, children’s education, or home purchase.
2. Bonus and Additions
Many endowment plans offer bonuses—such as reversionary and terminal bonuses—based on the insurer’s profits. These bonuses are added to your policy over time, increasing the total return without exposing you to market risk.
3. Whole Life Coverage
Modern endowment plans have evolved to offer life protection up to 99 or even 100 years. This ensures your family is financially secure for decades to come.
4. Tax Benefits
Premiums paid toward endowment plans qualify for tax deductions under Section 80C of the Income Tax Act (up to Rs. 1.5 lakh annually). Plus, maturity or death benefits are tax-free under Section 10(10D), making them a tax-efficient investment.
Let’s consider a practical example of how an endowment or term insurance plan like the Aviva Signature 3D Term Plan – Platinum can also help with tax savings.
Scenario:
- Policyholder: Mr. A, 30 years old, salaried employee
- Annual Salary: Rs. 12,00,000
- Standard Deduction: Rs. 50,000
Invests in Aviva Signature 3D Term Plan – Platinum
- Premium Paid Annually: Rs. 1,50,000
- Plan Option Chosen: Life Protect with Rs. 50 lakh sum assured
Without the Plan (No 80C Benefit):
- Taxable Income: Rs. 11,50,000
- Tax Payable (as per old regime): ~Rs. 1,49,500 (excluding cess)
With Aviva Signature 3D Term Plan – Platinum (80C Benefit Applied):
- Deduction under Section 80C: Rs. 1,50,000
- Taxable Income: Rs. 10,00,000
- Tax Payable: ~Rs. 1,04,000 (excluding cess)
Tax Saved: Rs. 45,500 per year!
So, in addition to securing his family’s future, Mr. A reduces his tax liability significantly just by choosing the right savings plan.
5. Optional Riders
Endowment plans allow policyholders to customize their coverage with riders like accidental death, critical illness, and waiver of premium—enhancing the financial protection your policy provides.
How to Select the Right Endowment Plan
Choosing the right endowment plan depends on several factors. Here’s what to keep in mind:
1. Define Your Financial Goals
Are you saving for your child’s education, your retirement, or a down payment on a house? Choose a policy term and sum assured that align with your financial milestones.
2. Understand the Types of Endowment Plans
- Full Endowment: Guaranteed sum assured plus bonuses.
- Low-Cost Endowment: Helps accumulate funds for a future goal like a loan repayment.
- Unit-Linked Endowment: This offers market-linked returns.
- Non-Profit & With-Profit Plans: Guaranteed returns (without/with bonuses).
3. Choose Participating or Non-Participating Plans
Participating plans allow you to earn bonuses based on the insurer’s profits, while non-participating plans offer fixed benefits without bonus accrual.
4. Check Premium Affordability
Ensure the premium amount fits comfortably within your current and future budget. Many plans offer flexible payment options—monthly, quarterly, annually, or single premium.
Plan Smart, Live Secure
With its dual role as a savings tool and security guarantee, an Endowment policy gets your family covered while allowing your money to grow securely for a prolonged period. Endowment plans provide users with peace of mind through guaranteed benefits as well as tax savings benefits and optional riders while offering comprehensive financial security in one package.
Investors who want to begin financial planning and want low-risk investment options should take seriously the decision to explore endowment policies. First, check your financial goals, then learn about your plan options and select a policy that matches your life events. All the premiums you pay today will create a safer future for your family.
*Standard T&C apply
*Tax benefit is subject to change as per tax laws
*Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read the sales brochure/policy wording carefully before concluding a sale.
Pranab Bhandari is an Editor of the Financial Blog “Financebuzz”. Apart from writing informative financial articles for his blog, he is a regular contributor to many national and international publications namely Tweak Your Biz, Growth Rocks ETC.
