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Endowment Policy

An endowment policy is a type of life insurance that provides both final protection and avenue for investment. Your nominee will receive a death benefit in case you pass away the within the term of the policy. In case you survive, the total premium invested grows at a rate of interest and is paid out as a lump sum on maturity.

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Endowment Policy

Endowment Plan - Meaning, Types and Benefits

Endowment Policy meaning
April 26, 2024


A life insurance policy is the best avenue to secure the financial future of your loved ones. A combination of life coverage and investment offers the best financial safety net for your family, something you can get from an Endowment policy. It also helps build a corpus to fulfil your financial goals, like creating an asset, meeting the education expenses of your children, and more. 

However, before you opt for an endowment plan, it is imperative to know what is endowment policy.

An endowment plan meaning is life insurance plan that offers both death as well as maturity benefits. The beneficiaries receive the sum assured by way of the death benefit if the policyholder expires during the policy term. On the other hand, if the policyholder survives the term, they will get a lump sum amount by way of maturity benefit.

What is Endowment Policy?

A life insurance plan that offers both life coverage as well as provides returns for the investment made by way of periodical premiums paid by the policyholder is the endowment policy meaning.

Investment in an endowment policy means building a corpus for future requirements while creating a financial safety net for your family. Different policy options are available to cater to different needs, but the endowment policy is the most popular owing to the dual benefit it offers, which is flexible premium payment options. 

How Does an Endowment Policy Work?

After understanding what is endowment plan is, you should also be aware of how it works before you contemplate investing in one. An endowment plan provides both life coverage and also helps in wealth creation. It provides financial security for your family by way of death benefit and helps your savings grow by way of returns on the premiums paid. 

Flexibility in premium payment modes is the advantage of an endowment policy. You can pay the premiums either monthly, quarterly, half-yearly, or yearly. Single premium payment is also enabled depending on the endowment plan you choose. 

You get a predetermined lump sum amount on the maturity of the endowment policy. The maturity proceeds are not affected by market fluctuations or any other changes. You can determine the sum assured depending on the funds required for your financial goals and customise the endowment plan accordingly. 

In case of the unfortunate death of the policyholder during the policy term, the beneficiaries or nominees will receive the life cover amount as per the plan, along with any other additional benefits specified in the plan.

The sum assured depends on the type of endowment policy purchased. For instance, guaranteed returns depending on the premium are provided in a low-risk endowment plan, whereas in unit-linked plans, the returns depend on the market conditions.

After knowing the endowment plan meaning and how they work, you can make an informed decision.

What are the types of endowment plans?

Information about the customisable plans available under endowment policy to suit individual financial goals is important besides knowing the endowment policy meaning:

  • Unit Linked Endowment Plan

    This Ulip plan is a combination of life cover and wealth creation. This endowment plan is suitable for individuals who aspire for both financial security for the family as well as returns on investment. A part of the premium paid by the policyholder is invested in the market, and the rest of it is utilised to offer life coverage. An additional advantage is the policyholder is given the choice of fund type. The choice depends on the policyholder's appetite for risk.
  • Endowment with full profits

    This plan provides for predetermined assured returns. This plan mitigates the risk of market fluctuations by paying out an assured amount on the maturity of the policy or the untimely death of the policyholder. The policyholder is entitled to additional bonuses declared by the company from time to time which will be paid out along with the survival benefit or on the untimely death of the policyholder.
  • Low-Cost Endowment

    The premiums fixed for this plan are low and can be an ideal long-term savings plan for individuals who intend to create a corpus for financial goals that are way ahead, like children’s higher education, children’s marriage, post-retirement fund, etc. The funds accumulated will be paid at the end of the policy term. The corpus created can also be utilised to pay off loans as well. Among the different types of life insurance plans, low-cost endowment plans are the most popular as they enable the creation of a corpus with nominal investment.
  • Non-profit Endowment

    If you want predictable and predetermined returns, a non-profit endowment policy is the ideal plan for you. A guaranteed sum will be given upon the maturity of the policy or the death of the policyholder. No bonuses or profits beyond the guaranteed amount will be given. The sum assured at the time of purchasing the policy will be the final payout.
  • Guaranteed Policy

    A guaranteed policy ensures that the policyholder gets a guaranteed amount upon the maturity of the policy or in the event of the demise of the policyholder during the policy term. The payout is guaranteed irrespective of the returns on investment made by the insurance company with the premiums paid by the policyholder.

What are the benefits of endowment policy? 

An informed decision while purchasing a policy can be made only on understanding what is endowment policy is and the associated benefits. The several benefits of an endowment policy are given below:

1. Ensure financial security for your family

You now know the endowment plan meaning and that it offers dual benefits of life cover as well as savings. If anything unforeseen happens during the policy term, the beneficiaries or the nominee will get a lump sum amount providing financial security for your family. Some endowment plans also provide additional benefits by way of bonuses, which can be redeemed along with the death benefit.

2. Helps Build Savings

As suggested by the definition of what is endowment plan, investing in an endowment policy is a savings plan with systematic investment by way of regular premium payments. The final payout is coupled with bonuses declared by the company from time to time, along with other guaranteed benefits.

3. Flexibility to Choose Premium Payment Frequency

The endowment plan offers flexible premium payment options depending on the convenience of the policyholder. It can be paid monthly, quarterly, half-yearly, or yearly. The flexibility allows the policyholder to budget and plan the savings.

  • Loan Option
    It is important to know if emergency funds are available when in need during the policy term in addition to understanding the endowment policy meaning. The policyholder can avail loan against some endowment policies when in need of urgent funds. The funds can be for any purpose.
  • Maturity Benefits
    Additional benefits in the form of guaranteed additions and bonuses announced by the insurer from time to time are offered along with the sum assured in some endowment plans. This increases the fund value and helps in substantial wealth creation for the systematic investments made in the investment plans.
  • Tax Advantages
    In addition to providing financial stability and life cover, endowment plans also help reduce the tax burden. The premiums paid towards an endowment policy are eligible for tax deduction deductions under 80C of the Income Tax Act 1961.

What are the features of an endowment plan? 

For a worthwhile investment in an endowment policy, it is essential to know the various features. Here are some of the features of an endowment plan:

  • Insurance Coverage

    This feature provides a financial safety net to the family by way of a lump sum payout in the event of the untimely demise of the policyholder.
  • Savings Component

    If you have understood what is endowment plan, you will know that an endowment policy not only serves as a financial safety net for your family but also helps in building a corpus for your future needs. The lump sum amount received, along with guaranteed additions and bonuses as a survival benefit, is the savings component that will help take care of your deferred financial goals.
  • Maturity Benefit

    Along with the guaranteed sum assured decided at the time of purchasing the policy, additional guaranteed benefits along with bonuses declared by the company from time to time can be redeemed at the time of final payout made on surviving the policy term.
  • Fixed Premiums

    The premium is decided depending on the sum assured and the policy term. This helps you to choose the sum assured and the policy term to suit your ability to pay premiums regularly. This way, you will never miss out on a premium and can ensure that the policy is in force at all times. 
  • Guaranteed Returns

    Guaranteed returns provide certainty to the policyholder's investment. The lump sum amounts payable on maturity or the death of the policyholder is predetermined at the time of purchasing the policy, which makes the returns on the investment predictable.
  • Bonus Declarations

    In addition to the guaranteed returns, some endowment plans also provide additional benefits in the form of bonuses declared by the company from time to time. This can be redeemed along with the final payout or the death benefit.
  • Flexibility

    Some endowment plans provide flexible cover, i.e., the life cover can be increased or decreased during the policy term depending on the ability to pay the premiums.
  • Tax Benefits

    The premiums paid for an endowment policy during a financial year are eligible for tax deduction under Section 80C.

What should you look for before purchasing an endowment policy?

If you are buying an endowment plan for the first time here are some factors to consider:

  • Goals of the policyholder

    Have a clear understanding of your financial goals and needs. Endowment plans cater to long-term financial goals and since the returns are significant and risk free, these plans work best for retirement goals, kids’ education and marriages, etc. An endowment plan is not a suitable option to meet immediate or short term goals.
  • Endowment plan features

    Always go through the features of all plans you are considering to understand the terms with clarity. Assess coverage, duration, premium to be paid, maturity amount and returns, availability of riders and more. You must compare different plans and opt for the one that meets your needs the best.
  • Importance of an endowment plan

    It is good to remember that an endowment plan is chosen for its assured returns over long-term savings. It also offers life coverage and a savings component that is a much better investment that basic term plans. For some investors an endowment plan may seem lucrative due to their tax benefits, though tax benefits are available through many other policies offering insurance benefits. It is therefore, important to identify the reason why you want to invest in an endowment plan and whether it will truly benefit you or not.

You can take advise from a financial advisor or consultant to understand more about endowment plans and their suitability to your financial goals and needs. It is best to make well informed financial decisions for best returns.

Why should a person purchase an Endowment Policy?

Here are some reasons to purchase an endowment policy:

  • An endowment policy is a perfect balance between life risk coverage and savings component.
  • Through an endowment policy one is able to save money in a systematic manner for future needs.
  • Policyholders receive a maturity amount upon surviving the policy term.
  • Helps secure the financial future of dependents and family in case of the policyholder’s death.
  • Offers risk-free and fixed returns on a limited sum assured. Hence it is a suitable investment for risk-averse investors.
  • Investors can avail tax benefits on the premiums paid up to a specified limit, as per Section 80C of the Income Tax Act.

What Are the Documents Required for an Endowment policy?

Given below is the list of documents required to buy an endowment policy. Also shared are documents required to make a maturity claim and a death claim.

Documents Required for Application:

  • Application form
  • Photograph of the applicant
  • Address proof
  • Proof of income

Documents Required for Maturity Claim:

  • Discharge Voucher
  • Endowment Policy Document

Documents Required for Death Claim:

  • Death certificate
  • Claim form
  • Endowment Policy Document
  • Assignment/ Re-assignment deeds if any
  • Discharge form — Executed and witnessed

Difference Between an Endowment and a Money-Back Policy

Here are some of the most common and prominent differences between an endowment and a money back policy:


Endowment Policy

Money Back Policy

Death benefit

Made as a lump sum payout to the beneficiary/nominee

Made as a lump sum payout to the beneficiary/nominee. But periodic payments are made to the policyholder during the policy term as well.

Suitable For

Best for those looking for life insurance with a long-term savings component

Best for those looking for life insurance with a periodic payout component.


Lump sum assured is paid upon maturity along with bonuses if any

Periodic payouts in part are done from the sum assured along with the bonuses accrued till maturity.


Offers limited flexibility. Premium and sum assured are fixed for the policy term.

Offers significant flexibility. Policyholder decides frequency and amount of payout.


It is accrued on the basis of performance of the policy.

It is accrued on the basis of performance of the policy.

Surrender Value

Surrender is possible after a certain, pre-specified period and the value varies as per the policy duration that has passed.

Surrender is possible after a certain, pre-specified period and the value varies as per the policy duration that has passed.

FAQs on Endowment Policy

Q. What is an endowment policy example?

In case of an endowment policy the insured receives a lump sum payout upon maturity or death, whichever occurs first. Such a policy combines insurance coverage with a savings component, offering financial protection and savings accumulation.

Q. What is the purpose of an endowment?

The primary purpose of an endowment policy is to provide financial security and cater for accumulation of savings for the insured. An endowment plan is a combination of life insurance coverage and a savings or investment component. Such a plan ensures that the insured or their beneficiaries receive a lump sum payout upon maturity or death. It is a great plan to help meet the insured’s financial goals in the face of their death.

Q. What is a 10-year endowment policy?

A 10-year endowment policy is a type of life insurance where the policyholder pays premiums for 10 years. When the plan matures after 10 years, the insured receives a lump sum payout. Such a plan has a shorter term of premium payment, ideal those seeking shorter investment commitments.

Q. What are the two types of endowment plans?

The two types of endowment policies are — traditional endowment policies and unit-linked endowment policies.

  • Traditional endowment policies offer fixed returns. They are managed by the insurance company.
  • Unit-linked endowment policies bring variable returns which are often higher but have associated risks. Through ULIPS policyholders can choose how their premiums are invested in various investment funds. They are managed by fund managers.

Q. Which endowment plan is best?

Investment preferences, individual financial goals and risk tolerance are some factors that determine which is the best endowment plan for you. While traditional endowment plans offer guaranteed returns, there is lower growth potential. Unit-linked endowment plans on the other hand have varying but higher returns, at a much higher market risk.

Q. Who benefits from an endowment?

Those seeking a combination of life insurance coverage and long-term savings accumulation stand to benefit from an endowment plan. It can work for those saving for specific financial goals, such as education, retirement planning, or providing for loved ones in the event of death. People looking for a disciplined savings vehicle with insurance protection may find endowment policies appealing.

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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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Author Profile Written By:
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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We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.

1. Provided all due premiums have been paid and the policy is in force.

18. Save 46,800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are a Regular Individual, Fall under 30% income tax slab having taxable income less than Rs. 50 lakh and Opt for Old tax regime.

19. In ULIP Plan, the investment risks in the investment portfolio is borne by the policyholder. @17.29% p.a. rate of return. Rate of return shown is fund performance of Diversified Equity Fund (for last 5 years). Please note that past fund performance is not indicative of future performance fund. Life Insurance is available in this plan. T&C Apply.

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