Endowment Life Insurance is a unique sort of life insurance plan which combines insurance and saving components together. People fondly buy these popular endowment plans for saving money, risk coverage ( life cover) and tax saving purposes.
Endowment life insurance is like Chhota packet bada dhamaka for risk averse investors. Endowment plans are also known for their safe and steady returns.
Table of Contents
What is endowment life Insurance policy
Endowment life insurance policy offers a lump sum payment upon maturity or upon death. It also offers financial security in the form of life insurance to the family in case of any casualty with the policyholder.
What is the difference between life insurance and endowment policy?
Life insurance is a legal contract between you and the insurance company wherein you promise to pay a certain sum for a specific duration and in turn the insurance company promises to pay lump sum amount at the maturity or in case of any mishap( Sum assured is paid)
There are many types of insurance plans such as endowment insurance plans, money back plans, term insurance,ULIP , pension plans, children education plans and more.
Endowment plans are a type of life insurance plan which provide guaranteed fixed maturity and risk coverage.
Endowment Plan Example
There are multiple endowment plans offered by all life insurance companies. Let’s discuss the famous LIC Endowment Plan.
LIC Endowment Plan table no 914.
Age of policyholder 30 years
Premium paying term 21 years
Life cover/ Sum Assured – 5 lac
If a person of 30 years opt to pay premium for 21 years for Sum Assured of 5 lac.
Premium
Then he has to pay a premium of Rs. 24072 every year/ Rs 11902 every half year/ Rs 6146 every quarter or Rs 2048 every month for a period of 21 years.
The premium has to be paid each year ( as per your chosen frequency) without fail. This premium amount will get tax deduction U/S 80 C.
Maturity
At maturity he will get approx 10.5 lac. This amount is exempted under section 10 ( 10D).
In case he dies in between the term of 21 years than his family/nominee will get 5 lac ( sum assured ) and bonus accumulated till that time.
Features of Endowment Policy
There are multiple features of an endowment insurance
- Fixed Premium amount – One has to pay a fixed amount each year/half year/quarter/month.
- Fixed Sum Assured– On death sum assured is given to the nominee appointed.
- Tax benefit U/S 80C – The premium amount up to Rs 1.5 lac get tax deduction U/S 80C.
- Guaranteed payouts- The payouts are guaranteed.
- Tax free Maturity– The maturity amount is tax free in nature.
what are the benefits of endowment policy
The endowment plan benefits as follows
- Saving money- People get the habit of saving through Endowment plans.
- Small amount of investment- One can start investing with a small amount. Even frequency can also be chosen as monthly, quarterly, half yearly or yearly.
- Safety of Capital Invested- These endowment plans are safe as they provide safety of capital and guaranteed returns.
- Guaranteed Returns- These plans provide guaranteed returns and this assurance is very much appraised by the policyholders.
- Tax benefit U/S 80 C- The amount up to 1.5 lac gets deduction U/S 80 C. So, if one deposits money for 21 year then he will get a tax deduction for 21 years for the paid amount.
- Tax Free maturity- The maturity amount is also tax free in nature. The maturity amount is exempt U/S 10(10D).
Disadvantages of Endowment Plans
- Low Return – The most negative point of Endowment insurance is low return. The person get low return in the tune of 5-6% from an endowment insurance policy. Which is quite low as compared to inflation.
- Therefore Endowment plans cannot survive inflation thus should be avoided. Instead one should buy term plan.
- Low Life Cover – The person gets low insurance cover. Which is the main requirement of the person. Imagine, in case of death of bread earner can the family survive with 5/10/20 lac amount. No, not in any way. Therefore high inusrnce cover plans are suggested.
Addition Reading
