What Does Pure Endowment Mean?

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Pure Endowment Policy 

It is often seen that most people see life insurance as a liability and do not view their premium payments as an investment in their future. Even policies such as term life insurance policy that go a long way in protecting the financial well-being of your family at a minimal investment, often miss on providing any survival benefit. That is the reason why a pure endowment policy is a perfect option for customers looking for an element of saving money through their insurance plan. A pure endowment plan helps us in building a corpus for our future financial needs. Let us understand it in greater detail.

What is a Pure Endowment Plan?

Simply put, a pure endowment plan aims to provide the policyholder with a predetermined amount if the policyholder survives beyond the policy term. There are no beneficiaries and no amount is payable if the policyholder loses their life during the policy period. As it does not provide any coverage for the policyholder’s life, it is considered unlawful by most judiciaries as a standalone policy; however, can be allowed if paired with a policy providing life cover.

To be eligible for the payment, you should pay your premiums on time without any failure during the term of the policy and live till the end of the specified duration of the policy. One thing to keep in mind is that without any death benefit if the policyholder passes away before the tenure of the policy is over, the family of the policyholder will not receive any compensation. That’s why many insurance professionals advise buying a pure endowment plan along with a conventional term plan or any other life insurance policy that comes with a death benefit. While the other policies may enable you to preserve the financial future of your family after your death, a pure endowment plan is focused on saving a small amount for your upcoming financial goals.

Another benefit of a pure endowment plan is that it will help you in maintaining financial discipline. The funds that you will receive at the end of the policy term can be used for several things, which include the education of your child, marriage, or even paying off your debts.

Read More: What is an Endowment Policy, and why should you get it?

6 Features of a Pure Endowment Plan

Mentioned herein below are some of the features that you should know about a pure endowment plan.

  • Maturity – If you survive through the policy term, you will be able to receive the guaranteed amount, collected bonuses, and in some cases even a one-time bonus. Even though the pure endowment policy comes with a decent rate of return, you will only get around 5% returns annually. As compared to a pure insurance plan, insurance coverage does not exist during the policy term.
  • Savings – A pure endowment insurance plan will need you to pay a premium for a certain time, which is usually not more than 35 years. After that, the insurance amount is paid out to you. It helps you in saving the money with a goal in mind and can be ideal for someone looking for saving money towards their retirement or child’s education. The only downside is that if you are not alive till the end of the policy term, however, your family will not get any returns on your investment.
  • Payout – The basic premise of a pure endowment plan is just like a life insurance plan in which the carrier promises to pay the policyholder a certain sum of money. The only difference is that it is payable only if the policyholder lives till the end of the policy’s term. Usually, the cash is offered in a single payment. When clubbed with a term life insurance plan, the final payout typically consists of the premiums paid over the term of the policy.
  • Beneficiaries – A traditional life insurance plan comes with beneficiaries, while it is not the same in the case of a pure endowment policy. This also means that insurance companies do not pay out benefits if the policyholders do not live till the end of the policy term. That is why there is no need for the policyholder to assign a beneficiary for the pure endowment plan.
  • Legality – Until and unless it is combined with a traditional life insurance plan that pays out to the nominees when the policyholder passes away, pure endowment plans are mostly prohibited by the life insurance rules of the state. In most cases, a term insurance policy is added with the pure endowment plan. Another term for a pure endowment is pure endowment assurance.
  • Premiums – To ensure receiving reimbursement from the insurance company, you should make it a point to pay the premiums on time and consistently and live till the time of the expiration date of the policy. Failing to do so may result in the policy becoming invalid.

A pure endowment policy can be called a risk-averse insurance policy. Nevertheless, before you put your money, you need to be aware of the fact that a pure endowment plan may not be enough for providing coverage for the needs of your insurance. It does not provide a big return on your investment due to lower return rates. When you are taking a term life insurance plan, you may be offered to add a pure endowment plan so that you can at least receive your premiums if you survive the policy term.

There are several types of pure endowment plans, and you can find them online. All that you need to do is to check out all of them online and choose the one that suits your needs. Used well, a pure endowment plan can make your life insurance policy more comprehensive and help you read benefits when you outlive the life insurance policy term.

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Gayatri Prabhu, Head-Digital Business at Mahindra Insurance Brokers Limited (MIBL) is one those few digital leaders who has the width and depth that is required to execute an ROI driven holistic digital strategy. She cuts through the noise, identifies the critical levers and leads her team to successful execution of the defined strategy. Her core mantra to win new and retain existing customers is: understand the consumer behavior and craft experiences around it.

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