Endowment plans are insurance policies with an investment component. The premium-paying term is usually one part of the policy paying term, but additions are earned for the entire policy term. These additions can either be guaranteed or variable. Usually, insurance providers give you a combination of both, in the form of guaranteed “additions” and variable “bonuses”.
Endowment plans are not a core component of a person’s investment portfolio—unlike term insurance or health insurance, they can be replaced with traditional options like fixed deposits and provident funds, or those with greater risk appetite can opt for ULIP (market linked) plans. Endowment plans offer a balance between the both—the rate of returns can be attractive while offering security in the form of guaranteed additions. Additionally, they offer facilities like:
Here is a quick look at the basic features of three endowment plans in the market today:
Under this plan, you can have a policy period of 10 years to 25 years, in which you can pay the premium through the first 5, 7 or 10 years. At the end of your policy period, you will get a maturity benefit, which will include all the premiums you have paid till date, plus revisionary bonus and terminal bonus.
In case of death during policy tenure, the insurer will give a death benefit. This death benefit includes sum assured on death, plus revisionary bonus and terminal bonus. It will amount to a minimum of 105% of premiums paid excluding all applicable bonus.
Shriram New Shri Life Plan is a unique endowment plan because it provides a relatively high rate of returns in case of surrender. As endowment plans are not indispensable, like term or health policies, many insurers choose to surrender in case of financial crises. Surrender value will include 30 to 90% of all premiums paid depending on the number of years for which you paid the premium. This ensures your losses are minimized even if you are not able to sustain the policy for the entire policy term.
Your surrender value will also include a part of the bonus that you have accrued till that date, ranging from 4.8% in case of surrender in your second year to 60% in case of surrender in the last year, of a 25 year policy. Additionally, Shriram New Shri Life Plan allows for advance premium payment.
While most policies do not entertain any claim made as a result of suicide, Shriram New Shri Life Plan ensures that you receive 80% of premiums paid in case of suicide committed within a year of purchase. In case of suicide after 1 year of purchase, either eighty per cent of premiums paid or surrender value (whichever is higher) will be paid.
Like most insurance policies, Shriram New Shri Life Plan comes with a grace period of 30 days. However, unlike most insurance providers, they do not discontinue coverage within this period. If the premium is not paid within this period, then the endowment plan will become a paid-up (reduced value) policy if the premium has been paid for a specified number of years.
According to the Reliance Endowment Plan , the policy-holder can opt for a maximum sum assured of Rs.5,00,000 if the life insured is a minor while for adults, there is no upper limit. Under the base plan, you will get the sum assured plus accumulated bonus on maturity. In case of death during the policy term, the insurance provider must give Life Cover Benefit—which also includes sum assured plus accumulated bonus on maturity.
Additionally, Reliance Endowment Plan comes with the option of four different riders. The life insurance benefit rider allows you to specify a sum different from that of your sum assured, in case of unfortunate loss of life. The accidental death and disablement rider ensures a maximum benefit of Rs.50,00,000 in case of accidental death. In case of total and permanent disablement, the benefit comprises sum assured paid out in ten equal installments.
Make sure you comply with Reliance’s definition of disability, before you make your claim-
“Total and Permanent Disablement is defined as the total and irrecoverable loss of sight of both eyes, or loss of one or two limb(s) at or above wrist or ankle, or permanent or irrecoverable loss of the sight of one eye for a period of at least six months.”
In case of disablement, even if you do not have any riders, all future premiums under the basic plan will be waived. In case of riders, premiums up to Rs.40,000 will be waived.
They also provide a Critical Conditions Rider, under which you will be paid the sum assured if you are diagnosed with any one of ten pre-specified major illnesses. This claim can be made only once during the policy term. Reliance Endowment Plan offers rebates for high sums assured, ranging for Rs.1 to Rs.4 per Rs.1000 sum assured.
Like Shriram New Shri Life Plan, Reliance Endowment plan also allows policy loan up to 90% of surrender value. Their minimum surrender benefit is 30% of total premiums paid. If the policy lapses due to the failure of premium payment, it can be reinstated to full benefits any time before maturity.
In the first 5 years from purchase of policy, your account will earn 5% simple interest on the sum assured. Thereafter, the policy will accrue additional bonus, like reversionary bonuses and terminal bonus. In case of death during the policy term, the claim will comprise sum assured (no less than 105% of total premiums paid) as well as interest and accrued bonus.
In case of your unfortunate death, your family can claim the death benefit either as a lump sum, or 50% immediately and the balance in installments. The latter option will earn interest at the rate of 4% pa over 5 or 10 years, a specified.
Unlike the two previous plans, loans that can be taken against Kotak Premier Endowment Policy can only be up to 80% of the surrender value. Like the Reliance Endowment Plan, Kotak Premier also offers a premium discount for high sum assured, but their rates are more conservative—a flat rate of Rs.2 per Rs.1000 sum assured, for coverage of RS.5 lakhs and above.
Besides reversionary bonus and terminal bonus, in case of claims made midway during a financial year an interim bonus can also be applicable. Unlike Reliance, Kotak Premier allows renewal of a lapsed policy within a period of two years from the first unpaid premium. Revival within the first 6 months is hassle-free, but after that proof of good health will be necessary. If the policy has not acquired surrender value, beyond two years it will be terminated without any benefits. However, it will be converted to a paid-up policy if it lapses after acquiring surrender value.
While these plans all serve the same purpose—investment option and life coverage—they vary in their tertiary features. So perform proper research prior to purchase, and do not rely on endowment plans for the fulfilment of your primary investment needs.