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Guide for endowment policy

November 16, 2018
While comparing the numerous insurance plans and policies in the market, it always helps to keep an open mind about the variety involved. Often we hear the term "endowment plan" or "endowment benefits" and are left to wonder the exact benefits of this and how to purchase one, if required. An endowment policy has been defined as a life insurance contract designed to pay a lump sum after a specific term (on its 'maturity') or in the event of the unfortunate demise of the policy holder. In endowment plans, typical period of maturity is ten, fifteen or twenty years up to a certain age limit. The purview of endowment benefits is flexible, with some policies covering and paying out in the case of critical illness. Hence, in an endowment policy, the policy holder has the choice of getting insured for the chosen duration. Bonus (depending on the years till the policy was in effect) is added and paid along with the sum assured when the policy matures.

Broadly speaking, endowment policies are of two types - profit-based endowment policies and non-profit based endowment policies. In endowment policies without profit, the nominee is paid only the sum assured in the event of the demise of policy holder. In case of endowment policies with benefit, the nominee is paid the sum assured as well as the bonus for the number of years the policy was in effect. An endowment policy offers guaranteed payment, irrespective of the maturity of the plan or the demise of the policyholder. Thus, an endowment policy is highly beneficial as it offers the combined advantage of guaranteed policy benefits and bonus (bonus is a non-guaranteed entity herein).

On the whole, an endowment policy has added advantages of being financial support coverage for your family in your absence. Besides, it comes with tax benefits and given its guaranteed benefits, is a low risk option. Apart from the regular features of insurance, there are Unit-linked endowments, which are investments where the premium is invested in units of a unitized insurance fund. Units are later encashed to cover the cost of the life assurance. Policyholders can often choose which funds their premiums are invested in and in what proportion. Unit prices are published on a regular basis and the encashment value of the policy is the current value of the units. To "endow" signifies giving and that is what these plans are meant to do give benefits that are guaranteed.

Endowment policy and additional bonus: An insurance company offers various kinds of bonuses in general. Specifically speaking about endowment policies, the insurer pays bonus as an extra amount in addition to the policy proceeds. However, to avail of a bonus, the policy holder must have a "with profit" endowment policy running and besides, the bonus is subject to the availability of funds in a given financial year after claims, costs and any additional expenses, if applicable. These bonuses are differentiated into Reversionary bonuses and Terminal bonuses. Reversionary bonuses are the additional monies added to the amount payable at death or maturity of the "with profit" endowment policies. Once made, it cannot be withdrawn if the policy matures or in the event of death. A terminal bonus is a discretional, non-guaranteed amount that is added to the payment made at the maturity of the policy or the death of the insured.

HDFC Life offers term insurance plans to best meet your needs and cover the financial corpus of your family. For details, click on the mentioned link: https://www.hdfclife.com/term-insurance-plans

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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