Things to know before buying an Endowment Plan in 2025

It is said that one should allocate a portion of their income to savings to get financial freedom in order to fulfill their life’s aspirations. A savings insurance plan such as an endowment plan is one such plan that enables you to save money consistently thus, creating wealth for you over time. 

An endowment plan provides the best of both worlds: the ability to save and grow your money, as well as the financial security of your family’s future through a life insurance policy. But if you are pondering about adding an endowment policy to your insurance basket alongside a term insurance plan or as a standalone policy, this article is a must-read for you. 

What is Endowment policy?

Endowment plans are life insurance policies that guarantee a specified sum of money and other benefits to the policyholder upon the policy’s maturity. In the event of the insured person or policyholder’s death, the nominee/beneficiary/dependents will also receive a death benefit. In other words, an endowment policy functions similarly to a basic term insurance plan with the added advantage of providing the policyholder with an additional savings or investment edge. 

In essence, an endowment plan provides two significant advantages:

Endowment Policy Death Benefits: In the event of the insured’s demise during the term of the endowment policy, the insurance company pays the sum assured to the nominees.

Maturity Benefits: The policyholder is entitled to receive the maturity from the insurer when the insured has survived the endowment policy term.

But, how does this plan work?

Endowment policy contains two clauses: “with profit” and “without profit.”

An endowment policy that generates profits provides nominees with benefits and terminal bonuses in addition to the sum assured amount which are guaranteed upon policy maturity. 

In contrast, a non-profit endowment policy is more akin to a conventional life insurance policy and does not provide the same benefits.

The main feature of an endowment policy is the provision of lump-sum payouts of the sum assured. At the end of the policy term, the insured individual receives the amount insured in a single sum and has the option to invest the funds to fulfill future financial objectives or obligations. There are no strict regulations regarding the choice of policy terms, which allows individuals to acquire endowment plans that meet their specific needs.

Who is eligible to purchase an endowment policy?

• If you believe that you are unable to save for your future needs and spend overly, an endowment policy would be an excellent investment option for you.
• Individuals who own an ongoing source of income and wish to accumulate a one-time sum after a specific period of time may wish to acquire an endowment policy. It functions as a disciplined way to invest that enables them to build their emergency fund for potential financial crises.
• Other professionals, such as lawyers and physicians, as well as businessmen and salaried individuals, may also take into account endowment policies to guarantee their financial stability in the long term.
• Endowment policies are also among the most beneficial investment strategies for individuals who are risk-averse. Additionally, if you are solely concerned with the insurance component and not the savings aspect, you may opt for a term insurance plan.

What are the benefits of purchasing an endowment policy?

It is beneficial to invest in an endowment policy, as there are investment plans that provide guaranteed returns. If you want to protect your loved ones from financial instability following your untimely death or to accumulate a corpus to achieve goals for the future without experiencing financial constraints, you may purchase an endowment policy. It is the optimal choice for achieving your investment objectives over a period of time.

Note: Nevertheless, it is imperative that you maintain a consistent source of income in order to cover the premium. Furthermore, the investment should be made in the long term in order to reap the benefits. In the event that you do not have a consistent source of income, you may also opt for single-pay endowment plans or a flexi-pay endowment policy.

Several factors should be taken into account prior to purchasing endowment policies.

When it comes to insurance, whether it is for a term insurance plan or an endowment plan, the earlier you start, the better it is. A longer investment results in higher returns. It helps the policyholder establish financial discipline and build a corpus. The following are a few factors that should be taken into account:

Examine Flexibility Options: Before purchasing an endowment policy, verify that the insurer offers the option to select the endowment plan type. For example, salaried individuals can choose to take part in a standard plan. In the contrary, people with an uncertain income stream may opt for a single premium payment endowment policy or a limited premium policy.

Choose the endowment policy rider Benefits: Verify whether the insurer provides additional options, including but not limited to a double endowment policy, education, and marriage. The rider benefits are subject to change among insurers. Endowment riders may be acquired in accordance with your preferences and prerequisites. Nevertheless, the purchase of endowment policy riders would necessitate a higher premium than a basic endowment insurance policy.

Guaranteed and Non-Guaranteed Returns: Endowment policies are not only low-risk insurance products, but they are also one of the most effective investment plans for savings and providing financial security to the policyholder’s loved ones. Furthermore, certain insurance policies offer both guaranteed and non-guaranteed returns. Guaranteed returns are fixed returns that are paid upon maturity or death, as applicable. Additions are payable upon maturity or demise, as applicable.

Bonuses: The value of an insurance company’s assets and liabilities is the basis for its profits. The company’s performance is the basis for the insurer’s declaration of bonuses for the year. At the end of the fiscal year, the insurance company distributes the profits generated by the investments to its customers.

So we are saying,

If you are interested in establishing an investment discipline, you may consider investing in endowment plans to provide for your future financial requirements as well as provide insurance coverage to your family. It offers life risk coverage and compensates the insured members in case of the demise of the policyholder. Occasionally, the returns may be lower; however, the sum assured is guaranteed upon the policy’s maturity. The policy also offers tax benefits, but they are subject to specific terms and conditions.