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What is Endowment Plan in Life Insurance?

 

 

This article introduces Endowment Plan / Policy of Life Insurance.

 

 

Features of Endowment Plan / Policy

Endowment Plan is a type of Life Insurance. Endowment plans were the most popular plans till some years back. This was largely because there were very few other options, and because the returns were assured by the insurance company.

In Endowment plans, the premium paid is partly used to secure insurance for your life, and partly used for investments to generate returns.

The investments made by the insurance company are absolutely non-transparent. You have absolutely no control over the investment made by the company. In fact, you would not even know how much money is invested in which asset!

The insurance company generally invests the money in virtually risk-free government debt – which is very safe, but earns meager returns. Each year, the company declares a “bonus”, which is nothing but the profit on the investments less the administrative and other expenses of the company.

(To see how ULIPs compare with Endowment plans, please read “ULIP v/s Endowment Plan for Life Insurance”)

There is lack of transparency here too – you don’t know how much the company has earned, and you don’t know how much the administrative and other expenses of the company are!

In case you survive the tenure of the policy, an amount equal to the sum insured plus the accumulated bonuses is paid to you. If you expire during the tenure of the policy, the sum insured plus the accumulated bonuses is paid to the nominee.

Since this is an insurance plus investment type of plan, for the same amount of sum assured, the premium for Endowment Plans is significantly higher than another type of insurance – Term Plan.

(To read more about the benefits of Term Plan, please read “Term policy is the best policy”)

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