We all come across people who say that endowment policy is the best life insurance policy with the least amount of risk, but what actually is an endowment policy and why is it so popular? We will come across all these questions but before that, let us know that what an endowment policy is. An endowment life insurance policy is a policy that couples the benefits of both, the life insurance, as well as savings. Being a combination of both insurance and investment, an endowment policy  apart from covering the life of the insured, helps the policyholder save regularly over a specific period of time so that he/she is able to get a lump sum amount on the maturity of the policy in case he/she survives the policy term. This maturity amount can be used to meet various financial needs such as funding one’s retirement, children’s education, children’s marriage or buying a house. In case of the death of the policyholder during the policy term, the sum assured along with accumulated bonus is paid to the nominees. How do endowment policies work? In an endowment policy, one needs to pay premiums for a fixed period of time (the policy term is chosen by the policyholder). A certain part of the premium gets allocated towards this sum assured. Another portion of the premium is allocated towards the administrative expenses of the insurance company selling the policy, while the remaining portion of the premium gets invested. Now in case the policyholder dies during the term of the policy, the sum assured, along with the accumulated bonus, is paid to the nominee (i.e. death benefit), whereas if the policyholder survives the term of the policy then he/she gets the sum assured in addition to the bonuses accrued (i.e. maturity benefit).This maturity amount can be used to meet various financial needs. Why should one buy an endowment policy? One should buy an endowment policy because it carries plenty of benefits like:

• Provides life insurance coverage during the policy term
• Endowment policy has maturity benefits i.e. if the policyholder survives the term of the policy then he/she gets the sum assured in addition to the bonuses accrued.
• It is less risky as compared to other investments
• Gives a decent return
• Endowment policy provides a disciplined route for savings
• Endowment policy helps you avail tax benefits

Drawbacks of an endowment policy A thing which has benefits will also have some drawbacks. Therefore, an endowment policy has drawbacks too which are:

• It is a low yield policy i.e. the return from this policy seems average keeping in mind its long-term horizon.
• The premium of an endowment plan is relatively higher than a term plan
• The surrender value is lower than the premium paid

Endowment Policy Premium Calculator The endowment policy premium calculator helps you to calculate the premium amount to be paid on a policy. All you have to do is, enter your information, like age, policy term, and the amount of sum assured. The calculator will give you the amount of premium to pay in either yearly, half-yearly, quarterly or monthly mode. Types of Endowment Policies

1. Unit Linked Endowment

Under Unit Linked endowment policies, the insurance premiums are converted into multiple units held under a specific investment fund which can be chosen by the policyholders.

2. Full endowment

In Full Endowment plan at the start of policy, you will be assured with the basic sum which is also equal to the death benefit. However, the amount you get at the end of maturity depends on the annual growth rate and is higher than the sum assured.

3. Low-cost endowment

Lost cost endowment is designed in such a way that it can be used to pay off a mortgage after a specified period of time In case of death, this target amount will be paid as the minimum assured sum.

4. With profit endowment policy

In with profit endowment policy, the nominees get sum assured along with the bonuses for the number of years the policyholder was alive in case of death of the policyholder. And in case the policyholder survives he will still receive the sum assured along with the accumulated bonuses.

5. Without profit endowment policy

As the name suggests this plan gives only the sum assured upon the death of the insured. The premium is if without profit policy is lower than that of with profit policy. Bonuses in Endowment Policy There are various types of bonuses which are given by the insurers to, either the nominees or the policyholders themselves, in addition to the sum assured. Only the holder of With Profit policy are entitled to receive bonuses along with the sum assured. The payment of the bonus is conditional on the life insurer having surplus funds after claims, costs, and expenses in a particular year. Usually, bonuses are given either as a certain amount per ₹ 1000 sum assured or as a percentage of the sum assured. For example, the bonus may be ₹ 20 for every ₹ 1,000 of the sum assured. So, if a policy has a sum assured of ₹ 1 lakh, then the bonus amount would be ₹ 2,000. In the above example, if the term of the policy is 15 years, the total bonus accumulated at maturity will be ₹ 30,000.

• Simple revisionary bonus: The simple revisionary bonus is a bonus which keeps on adding (accruing) annually to your policy. It is given to you with the sum assured for the term for which the policy stays active. In the above example, it is ₹ 30,000.
• Compound revisionary bonus: This bonus is calculated on the basis of compounded interest. Every year’s bonus is added to the sum assured and the next year’s bonus is calculated on the increased amount.
• Terminal bonus: This bonus is paid at the time of the maturity of the policy or on the death of the insured on the condition that the policyholder pays all premiums without any default. It is a discretionary bonus and depends on the company’s performance.

Riders for Endowment Policy The riders which are available with endowment policies are as follows:

• Critical Illness Benefit
• Waiver of premium benefit
• Accidental death benefit
• Accidental permanent total/partial disability benefit
• Hospital cash benefit
• Family Income benefit

Documents Required for an Endowment Policy In order to apply for an endowment policy, a person is required to submit basic documentation such as the following:

• Fully filled Application form/Proposal form.
• Photograph.
• Proof of residence/address proof.
• Proof of age.
• Medical reports (only if required).