Endowment policy advantage


Endowment policies are great saving-cum-insurance plans. They assure safety of investment and some also offer guaranteed returns.

Endowment plans serve two purposes — life cover and savings. These policies are essentially money accumulation or saving plans that guarantee a certain amount of cash at the end of the policy term or on death of the policyholder, whichever is earlier.

An endowment plan is designed as a vehicle for long-term savings and offers both survival as well as death benefits. A large part of the premium paid under the plan is invested by the insurance company on behalf of the policy holder and is returned to the policyholder at the time of maturity or on the event of death.

There is also a life insurance cover offered, in the sense that in the event of death of the life-assured during the term of the contract, the insurance company pays a lump sum amount (which consists of the sum assured and bonuses, if any) irrespective of the premium paid till the time of the death.

The premium paying periods under an endowment policy can be either for a stated number of years or till a stated age.

Types of endowment policy

There are essentially two types of Endowment Policies:

1) ‘With profits’ policies (also called participative policies): In these policies, the insured shares the profit made by the insurer, who invests the premiums on his behalf. These profit payouts are called bonuses.

2) ‘Without profit’ policies: These are endowment policies wherein the insured does not receive any bonus and has no share in the profits.

Typically, the premiums payable are higher in the case of ‘with profits’ policies because the difference is invested on behalf of the policy holder.


A bonus is the policy-holder’s share in the company’s profits. There are several types of bonuses and participative policies may offer only one or a combination of these.

Non-reversionary bonus: Companies announce the rate of non-reversionary bonus every year and the policy-holders can either redeem the bonus or plough it back.

Reversionary bonus: This is a guaranteed addition to your insured amount and is paid when the policy matures (i.e. when the sum assured becomes payable) or when the life assured dies.

The insurer guarantees the bonus/profit declared as a certain amount per thousand of sum assured. This assured bonus will be credited to the policyholder, irrespective of the performance of insurance company.

Loyalty Bonus: In some policies, over and above guaranteed bonuses, the insurer will declare and credit to the policyholder, an additional amount per thousand of sum assured every 5 years or so, depending on its performance. This additional amount is known as a loyalty bonus.

Terminal Bonus: Sometimes a terminal bonus, which consists of undistributed profits, may be declared on the maturity or the death of the policy holder.

Loan availability

You can take a loan against the endowment policy after the policy acquires cash value, that is, after usually 3 years of the policy being in force, provided you have been paying all your premiums regularly until then.

The loan amount will depend on the surrender value of the policy (i.e. the amount realized on surrender of the policy).

IRDA prescribes that not more than 35 per cent of the investments in endowment plans can be made in equity. These plans are meant for people whose needs are titled towards keeping their investments safe for the future rather than a rapidly growing but higher risk investment.

Endowment plans are best for people who want a simple no-frills, high safety investment-cum-insurance product. It is essential that the product is brought from a company you trust with your eyes closed since no details of the charges or investments are available to the investor.

Endowment polices hold popular appeal especially amongst investors who prefer a safe vehicle for insurance and investment.