Guaranteed return plans
Life insurance policies provide coverage against the risk of premature death. They pay a death benefit if the insured individual dies due to an accident or an illness and help the family deal with the financial loss suffered. Moreover, there are savings oriented life insurance plans too that offer a maturity benefit if the insured survives till the policy tenure. In fact, if you look at the types of life insurance plans available in the market, here’s the type of life insurance plans that you can find –
If you are looking to earn guaranteed returns on your investments, along with enjoying life insurance protection, you can opt for guaranteed returns plans.
What is an endowment assurance plan?
Endowment plans are traditional, savings oriented life insurance investment plans. They combine the features of insurance protection and wealth creation. Under endowment plans, there is a guaranteed benefit payable on maturity or on premature death. Thus, if the insured dies during the policy tenure, the endowment plan would pay a guaranteed death benefit. Alternatively, if the insured survives the policy tenure, the guaranteed savings plan would pay a guaranteed maturity benefit.
How does an endowment plan work?
Under an endowment investment plan, you choose the following details of the policy –
- The sum assured
- The policy tenure
- The premium paying tenure
- The premium paying frequency, i.e. whether you wish to pay the premiums annually, half-yearly, quarterly or monthly
Based on the policy details you choose, your age and your medical history, the premium is calculated.
You have to pay the premiums for the chosen premium paying tenure. If during the term of the policy, the insured member dies, the death benefit would be paid. The death benefit is, usually, the sum assured along with any bonus or policy additions added under the plan.
On the other hand, if you survive the term of the policy, the maturity benefit would be paid. This benefit is also equal to the sum assured and any other additions depending on the benefits promised under the investment plan.
Mr Verma buys an endowment assurance policy with a sum assured of Rs.10 lakhs. The policy tenure is 20 years and the premiums are payable annually for the entire duration of the policy. The policy also pays Rs.10,000 as guaranteed additions after the first five years of the tenure. The premium for the policy is Rs.35,000 per year.
Case 1 – Mr Verma dies in the 10th policy year.
In this case, the sum assured of Rs.10 lakhs would be paid. Moreover, guaranteed additions would have accrued from the 6th year till the 10th year. So, the total guaranteed additions of Rs.50,000 (10,000*5) would also be added to the sum assured. Mr Verma’s family would, thus, receive Rs.10,50,000 on Mr Verma’s demise.
Case 2 – Mr Verma dies in the 4th policy year.
In this case, the guaranteed additions have not started accruing because they are added after five complete policy years. So, in this case, Mr Verma’s nominee would receive Rs.10 lakhs as the death benefit.
Case 3 – Mr Verma survives the policy term of 20 years
In this case, the plan would pay a maturity benefit. This benefit would be the sum assured and the guaranteed additions earned during the tenure. So, it would be as follows –
Sum assured = Rs.10 lakhs
Guaranteed additions – Rs.10,000 * 15 = Rs.1.5 lakhs
Total maturity benefit = Rs.11,50,000
Inclusions and exclusions in endowment plans
Here is a look into what endowment plans cover and what they don’t -
Endowment plans have death as well as maturity benefit.
- Death Benefit:
It covers premature death. Death can result from accidents, injuries or illnesses. You would, thus, receive a claim under both natural and accidental deaths.
- Death Benefit:
Though endowment plans cover all types of deaths, the following instances are excluded from coverage –
- If the insured commits suicide and dies within a year of buying the policy, such a death would not be covered. In such cases, the premiums paid would be refunded back.
- If the insured commits suicide and dies within a year of reviving a lapsed policy, the death benefit would not be paid. In such cases, a higher of 80% of the premiums paid or the acquired surrender value is paid under the plan.
- If the insured dies due to participation in adventure sports or other hazardous activities, such a death would be excluded
- Death due to alcohol, drugs or any other intoxicating or banned substances would not be covered
- Death when committing a criminal act is excluded from the policy
- If you hide or lie about important information, that affects your death risk, when buying the plan, the claim would be rejected if the insurance company finds about such non-disclosure or misrepresentation.
- Fraudulent claims are not entertained under the plan
Features and benefits of endowment plans
Now that you know what endowment plans are and how they work, here are their salient features and benefits–
- Long term savings and insurance
Endowment insurance plans come with a long-term horizon so that you can save over a long term period and also enjoy coverage over a long term period. The term usually starts from 5 years and can continue lifelong. There are whole life endowment plans that cover you till 99 or 100 years of age. So, you can choose the best saving plan for short-term by limiting the tenure or opt for whole life coverage for maximum coverage.
- Guaranteed returns
Endowment plans are traditional saving plans that give you guaranteed returns that are not dependent on the market. So, even if the markets are volatile or falling, your money would be safe in endowment plans and you can get guaranteed returns.
- Wealth enhancement through bonus or other additions
Endowment plans might come as participating saving plans. Participating plans earn bonus additions that enhance the corpus payable on death or maturity. Moreover, many endowment policies offer guaranteed additions, loyalty additions, or wealth boosters that provide additional earnings on the sum assured so that you can get enhanced benefits on death or maturity. Thus, an endowment plan is the best investment plan with high returns.
- Life cover
If being the best investment plan with high returns is not enough, endowment plans also offer life insurance protection so that your financial goals are unharmed even in case of your sudden demise. The death benefit paid by endowment plans ensures that your family is taken care of financially even when you are not around.
- Fulfilment of financial goals
You can plan and create a corpus for your financial goals through endowment plans which are the best saving investment plans in India. Goals like buying a home, planning for your child’s future education, buying a car, etc. can be planned through these policies. You can save regularly and receive a guaranteed maturity benefit that can be utilized to fund your goals. Moreover, the death benefit promised under the endowment policy also ensures that your goals are undisturbed even when you are not around.
- Liquidity through loans
Endowment plans allow you to opt for policy loans during the coverage duration if you need funds for emergencies. A loan facility is available in your plan acquires a surrender value. You can avail of up to 90% of the surrender value as a loan and get instant funds for meeting any type of personal or commercial financial need.
- Flexibility in premium payment
You can choose to pay the premium at once when buying the policy, for a limited period, or for the whole policy tenure. Moreover, endowment policies can double up as monthly saving plans allowing you to pay premiums in the monthly mode along with quarterly, half-yearly or annual mode.
Who should buy it?
Endowment plans is the best savings plan in India that can be bought by individuals looking to create a guaranteed corpus over a long term horizon. As far as the eligibility parameters are concerned, the minimum entry age under many plans starts at 30 to 90 days. The maximum entry age, however, is limited to 65 years under most plans.
Resident individuals as well as NRIs(Non-resident Indians) can invest in endowment plans for savings and insurance-related needs.