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The value of life: A primer on endowment plans

The markets are abuzz with different variants of insurance policies. But the most popular among them is undoubtedly endowment.

business Updated: Apr 02, 2004 13:17 IST

The markets are abuzz with different variants of insurance policies. But the most popular among them is undoubtedly endowment.Endowments are the policies that combine a savings-cum-investment element to your life cover. Typically, therefore, you get a 'return' on your 'investment' in endowment plans -- either during the tenure of the insurance contract, or on its maturity.

"The endowment plan and its variables remain the most important saleable plan because it serves the dual purpose of making provision for the family in case of earlier death of the life assured or payment of the total sum assured in a lump sum or in the form of annuity, if so deserved, in case the life assured survives till maturity. It is a total answer to the age-old problem of 'dying too early or living too long'," said a former senior official of LIC, PH Yadav.

Another reason for their attractiveness is that for many people, term plans -- which are low-premium, pure-risk insurance covers -- seem unattractive on one count: they offer no "maturity benefits". The benefits, the sum assured, accrue to your nominee only in the event of your death. In other words, in the perception of some, the premiums paid on a term plan count as so much money down the drain if you survive the policy. That view, though an incorrect version of looking at insurance plans, is precisely the most important reason why endowment plans have proved a big hit. After all, with these plans, you get "money if you live, money if you don't". That sure sounds like a tempting proposition.

Benefit of endowment over whole life plans

Typically, as your children grow up and get independently settled, your responsibility to protect the family financially reduces significantly. The focus now shifts to managing a smaller family -- perhaps only yourself and your spouse -- after retirement. This is where the endowment -- the original sum assured and the accumulated bonus -- received comes in handy. You can either use the endowment amount to buy an annuity policy to generate a monthly pension for the rest of your life, or put it into any other suitable investment of your choice. This is the major benefit that an endowment policy offers over a whole life one.

How do they work?

Various types of endowment policies are available for the investor, but in operational details they are all fairly similar. You pay a premium for a predefined tenure and sum assured; the premium will depend on your age, the sum assured, the type and tenure of the plan, and the nature of the returns. A portion of your premium goes towards your risk cover, and another portion is invested on your behalf in permissible instruments. The returns may accrue either as guaranteed additions or as bonuses, which are paid out of the profits generated by the insurer.

For a given age and tenure, the premiums you'll pay on an endowment plan are substantially higher than on a term plan. In addition, on plans that offer guaranteed additions, the premiums are higher than on those that offer bonus-linked returns; that's because, unlike with assured-returns plans, there's no certainty about the quantum of the profit-linked bonus that the insurer may declare from year to year.

On most endowment plans, the returns (in the form of the sum assured plus accumulated bonuses or guaranteed additions) accrue to you once you survive the policy. On money-back variants of endowment plans, a portion of the maturity benefits is paid out periodically during the policy tenure. But there is a flexibility of choosing the type of premium based on your income and earning period or special requirements.

The tax edge

The returns from endowment plans enjoy a tax edge for now. Under Section 10 (10D) of the Income Tax Act, maturity benefits on insurance plans are tax-free in your hands. And, as with all other insurance plans, premiums paid on endowment policies qualify for rebate under Section 88-if you're eligible for it.

Different policies available

Jeevan Anand (LIC)

Jeevan Anand is a combination of a whole life plan and with profit endowment plan. It is suitable for people who wish to provide for their dependents, insured sums, limit the premium payment term to their earning period and at the same time provide for their old age. Under the plan, premiums are limited to the term chosen and benefits are payable on the date of maturity. But the insurance cover on the life assured continues till death, like a whole life policy. Bonus accrues during the premium paying term and is payable at the end of the premium paying term or on earlier death along with final additional bonus. No bonus is paid on death after the premium paying term.

Double accident benefit is available during the premium paying term and thereafter up to age 70 wherein additional sum assured is payable on death due to an accident. A maximum accident cover of Rs 5 lakh is available under the plan.

On survival to maturity, full sum assured along with bonus is payable. Policy does not cease and insurance cover continues till death. On death within the term, full sum assured along with the bonus is payable and policy ceases.

On death after the term of the policy, full sum assured is payable.

The plan is open for those in the age group of 5-57 years with a minimum sum assured of Rs 1,00,000.

Flexi save Plus Plan (Birla Sun Life)

Like other endowment plans, it offers a combination of savings and security cover. The plan is open to those in the 1-65 age group with a minimum sum assured of Rs 75,000 (Rs 50,000 for minors). The plan duration ranges from 10-30 years (in steps of five years), or it can be made to mature at a specific age such as 60, 65, 70 or 80.

A feature of this policy is the premium paying term. Unlike other plans that require premium payment over the entire tenure, one can pay the premium either over a restricted term over five years for a 10-year policy, but cover exists over the entire policy term or in the form of a single premium. With the fate of tax rebates on insurance premium payments hanging in the balance, the single premium option is especially attractive.

The insuree can also choose an investment plan that suits his risk profile.

The 'Protector' plan guarantees a return of six per cent; the 'Builder' plan 4.5 per cent, and the 'Enhancer' plan three per cent. These are computed on the investable portion of the premium. Should the company generate higher returns, the same will be passed on to the policyholder.

On maturity, the insuree receives the surrender value plus the bonuses generated, if any, over and the above the guaranteed return under the chosen plan. If the insuree dies during the plan's tenure, the beneficiary will receive the sum assured, the accumulated bonuses till that date, and the non-guaranteed additional bonuses.

The insuree can also withdraw bonuses after three years and take a loan up to 90 per cent of the surrender value.

The plan provides for four riders -- critical illness rider, term rider, waiver of premium rider and accidental death and dismemberment rider.

Apart from the benefits of a conventional endowment plan, it is the flexibility in the premium payment term and the non-reversionary bonuses that make this plan definitely worth a look.

Endowment Assurance Plan (HDFC Standard Life)

This policy provides for family protection as well as old age provision. The basic features of the policy include that a lump sum amount is payable on survival to maturity or on death, whichever is earlier.

Premiums are payable till the end of payment term chosen or death, which ever is earlier. However, in case of plans where 'waiver of premium' benefit has been availed, premiums are not payable during the period of disablement.

A tax rebate under section 88 of Income Tax Act 1961 is also applicable on premiums paid under the policy.

Benefits under the policy can be enhanced by opting for riders. The riders available under the plan include -- double sum assured, accidental death benefit, waiver of premium, and critical illness.

Double Sum Assured (DSA): This benefit provides for an additional amount equivalent to the basic sum assured in case of unfortunate death.

Accidental Death Benefit (ADB): This benefit provides for an additional amount equivalent to the basic sum assured in case of death due to accident.

Waiver of Premium (WOP): By the virtue of this benefit all future premiums stand waived in case of total disablement of the life assured. The waiver applies during the period of total disability.

Critical Illness (CI): This benefit will provide for an additional amount equivalent to the basic sum assured on insured contracting to any of the six specified critical illnesses. Critical illness benefit will be paid on insured surviving 30 days from the date of claim.

On the untimely death of the policyholder, the beneficiary gets basic sum assured along with bonus accrued. On survival, the basic sum assured plus bonus is payable to the beneficiary. The policy term is 30 years maximum.

Max New York Life Insurance Endowment Plan

This plan is suitable for people who wish to save money for certain specific purpose like children's education, marriage etc. Further sums are guaranteed, covering the contingencies of both surviving to maturity and also death within the term. Sum assured is payable either on survival to maturity or death occurring with in the term of the policy.

Premiums are payable till the date of maturity or till date of death within the term. Further, the insured has the option to choose the mode of payment as yearly, half-yearly, quarterly or monthly

The policy acquires a cash surrender value at the end of three years and one take a loan on this amount, at a rate of interest as may be fixed by the company on the basis of the prevailing rates of interest.

Max New York life offers the insured a host of riders or benefits to enhance the value of his insurance policy. These benefits can be availed at the time of buying policy or anytime later, subject to meeting certain conditions.

Sum assured plus accumulated bonus declared every year by the company (bonuses are not guaranteed and will be declared by the company from time to time.) is payable on life assured surviving to maturity or death occurring within the term.

Save 'n' protect (ICICI Pru Life Insurance)

It is an ideal plan for persons who wish to accumulate savings on a regular basis, while having insurance protection. It is basically an Endowment Assurance Plan with deferred participation in profits and extended life cover.

On death occurring within the term, full sum assured plus guaranteed additions & vested bonuses are payable. On survival, full sum assured plus guaranteed additions & vested bonuses are payable.

Additionally, one gets a free life cover for 5 years for 50% of original. No Evidence of health is required and no premium is required for this. The riders available are -- Accident & disability benefit, waiver of future premiums, critical illness benefit, major surgical assistance, and level term insurance.

When one avails extend life cover, no riders are available.

Minimum sum assured under this policy is Rs 20,000.

Kotak Endowment Plan (Om Kotak)

The plan is suitable for people who wish to invest in a savings instrument all the while having life insurance cover. It is an endowment plan where in amounts are payable either on maturity or death occurring within the term. Premiums cease at death or on expiry of term whichever is earlier. Bonus is payable under this scheme

Loan can be availed under the policy provided the policy is kept in force for 3 years, however the amount depends on the balance in life assured's accumulation account. The interest rate is determined based on the prevailing interest rates.

In the event of default in premium payment, life is still covered. For this minimum 3 years' premium should have been paid. On maturity, sum assured plus bonus addition is payable. On death, during the term of the plan, the beneficiary receives the sum assured plus the excess, if any, over the sum assured.

This plan is for people between the ages of 18 to 65 years.

Sudarshan (SBI Life)

The policy is suitable to provide for the children's future education, marriage expenses or retirement, in a most flexible manner. At the same time insurance cover continues for the whole of the term. The policy acts as a hedging instrument and can cover even medical expenses, if one happens to unfortunately face the terminal and dreaded illnesses.

It is an endowment policy, where the savings component accumulates year after year with risk cover being intact for the full sum assured for the whole of the term.

The riders available along with this policy are: Pure Term Assurance, Accidental Death/TPD, and Critical Illness Covers.

On Maturity, for Fixed Sum Assured Plan - the sum assured, along with the bonus accrued under the policy, is payable on maturity of the policy. For Increasing Sum Assured Plan - the sum assured, increased @ 5% for every year of completed policy anniversary, along with the accrued bonus, is paid on maturity.

On Death, for Fixed Sum Assured Plan - the sum assured is paid along with bonus accrued under the policy. For Increasing Sum Assured Plan - the sum assured increased @ 5% for every year of completed policy anniversary, along with the accrued bonus, is payable.

This is for people between the age group of 12 to 65 years, and the minimum sum assured payable is Rs 25,000.

Security and Growth (Tata AIG life)

This is an endowment policy that provides both security to your family and also growth of your savings. Hence it is suitable for all categories of people.

It is an endowment plan where in lump sum amount is payable either on death or on maturity. Bonus is payable under the policy.

Guaranteed additions are payable if the policy is kept in force for a period of 10 or more years. The policy can be availed for 10, 20 or 30 years.

One can avail various add-ons available like Accident Benefit, Disability Benefit etc. On maturity, full sum assured plus bonus plus guaranteed additions are payable

On death, full sum assured plus bonus plus guaranteed additions are payable.

Allianz Bajaj Save Care Plan

The policy is suitable for people who wish to provide family protection as well as provide for their old age. This is an endowment policy wherein benefits under the policy are payable either on death or on maturity. Policyholder has the option to choose from the four plans available, to suit his needs.

The four options available are - Save care (Economy), Save care (Protect), Save care (Health) care, and Save care (Total)

Each of the above plans is offered in four variants namely, Option A, Option B, Option C and Option D, where in death benefit is single, double, triple or four times the sum assured respectively. Bonus is payable under the policy

Accidental Death Benefit, Accidental Permanent Total/Partial Disability Benefit And Waiver of Premium Benefit are built in and no additional premiums need to be paid. Critical illness and Hospital Cash Benefit riders are also built in; no additional premiums need to be paid. One can exclude certain benefits for discount in premium at the end of each policy year.

On Death, benefits depends on the type of plan chosen i.e., single, double, triple or four times the sum assured is payable under Option A, Option B, Option C and Option D respectively. Apart from the above bonus +Terminal Bonus (Conditions apply) are payable.

On Survival, full sum assured plus bonus plus terminal bonus (Conditions apply) are payable.

The Minimum Sum Assured in this policy is Rs 50,000.

Subha Shree Special Endowment Assurance Plan (AMP Sanmar)

Subha shree offered by AMP Samnar is an endowment plan combining security with saving and thus ensuring financial security for the family along with providing for one's old age. Subha shree is specially designed for you and your family.

Subha Shree is a limited payment endowment assurance plan i.e., premium-paying term is less than the policy term.

On surviving the premium paying term full sum assured is payable and policy does not come to end but continues till the end of the policy term. On the maturity date full vest bonus is payable. However on death after the premium paying term but before the maturity date full sum assured along with vested bonus is payable.

The policy pays full sum assured along with vested bonus on death during the term of the policy irrespective of earlier benefits.

Premiums are payable till death or till the end of the premium paying term which ever is earlier.

On Death, the policy pays full sum assured along with vested bonus on death during the term of the policy irrespective of earlier survival benefits.

On Survival, full sum assured is payable and policy does not come to end but continues till end of the policy term. On the maturity date full vested bonus is payable.

Critical conditions rider and accidental cover are the riders available with this policy.

The policy is suitable for the age group 12 -65 years, and the minimum sum assured is Rs 25,000.

Participating Endowment Assurance (MET Life)

The plan is suitable for those who want to accumulate funds and provide for their old age at the same time have insurance protection.

It is an endowment plan where in amounts are payable either on maturity or death occurring within the term.

The policy is available in two types
1. MET Gold (Participating Endowment Assurance)
2. MET Platinum (Participating Endowment Assurance)

While max sum assured allowed under Met Gold is Rs 2,99,000, Met Platinum is offered only for a sum assured of Rs 3 lakhs and above. Met Platinum being offered for higher sum assured, premiums for Met Platinum are comparatively lower than that of the Met Gold

No Bonus is payable for first two policy years. Thereafter a bonus as declared by the company will be credited as reversionary bonus on the policy anniversary. Company may also declare terminal bonus.

Accidental Death Benefit Rider, Term Rider, Waiver of Premium Rider and Critical Illness Rider are the various riders available with the plan.

On maturity, sum assured plus accrued, reversionary bonus plus terminal bonus, if any, is payable. On death, sum assured plus accrued Reversionary bonus plus Terminal bonus, if any, is payable.

Endowment With Profit Plan (Table 014) (LIC)

This is a Moderate Premiums, High bonus, High liquidity, and Savings oriented policy. This policy not only makes provisions for the family of the Life Assured in event of his early death but also assures a lump sum at a desired age. The lump sum can be reinvested to provide an annuity during the remainder of his life or in any other way considered suitable at that time.

Premiums are usually payable for the selected term of years or until death if it occurs during the term period.

Being an endowment assurance policy, this plan is apt for people of all ages and social groups who wish to protect their families from a financial setback that may occur owing to their demise.

The amount assured if not paid by reason of his death earlier will payable at the end of the endowment term where it can be invested in an annuity provision for the rest of the policyholder's life or in any other way he may think most suitable at that time.

In case policy holder becomes totally and permanently disabled due to an accident before reaching the age of 70 and the policy is in full force, he will not be required to pay further premiums, (the Disability Benefit is available in respect of the first Rs 20,000 sum assured on any one life) and the policy will continue to be in force.

By paying a small extra premium of Rs 1 per Rs 1000 sum assured per year he or his family are entitled to the following benefits on death or permanent disability caused by accident. Even students above the age of 18 years can avail of this benefit.

On survival, payment of full sum assured plus vested bonus plus final additional bonus, if any is payable. On death of the insuree, the beneficiary gets the full sum assured plus vested bonus. This policy is for people within the age group of 12 to 65, with a minimum sum assured of Rs 30,000.

Jeevan Mitra (Double cover) (LIC)

The benefits of this policy are considered normally for standard and substandard lives Class I and II. It cannot be allowed for people engaged in hazardous occupations. Female lives under Category I & II allowed. Non-medical special is allowed only if the Sum Assured does not exceed Rs 1,00,000.

Besides the usual benefits offered by any endowment insurance plan, this policy provides for an additional insurance cover equal to the sum assured in the event of a policyholder's death during the term of the policy. In other words, the death claim in the case of this policy is twice the basic sum assured.

The survival claim, on the other hand, is the basic sum assured, plus the accrued bonuses. Bonus is, similarly, calculated only on the basic sum assured at rates applicable to endowment policies.

For instance, if a person insured for Rs 10,000 under this policy were to die before its maturity, the death claim payable would be Rs 20,000 plus the accrued bonus on Rs 10,000, the basic sum assured. If the policyholder survives the full term of the policy, the payment on maturity would be Rs 10,000 plus the accumulated bonus.

Being a high-risk endowment assurance policy, this plan is suitable for people of young ages who wish to protect their families from a financial setback that may occur owing to their premature death. The amount assured if not paid by reason of his death earlier will payable at the end of the endowment term where it can be invested in an annuity provision for the rest of the policyholder's life or in any other way he may think most suitable at that time.

On survival, sum assured plus vested bonus on the basic sum assured is given to the insurer.

On death, double the sum assured plus vested bonuses on the basic sum assured is given to the beneficiary. The minimum sum assured under this policy is Rs 20000.

Jeevan Mitra (Triple cover) (LIC)

The benefits of this policy can be considered only for standard and substandard lives Class I and II. It cannot be allowed for people engaged in hazardous occupations. Individuals engaged in dangerous pursuits will be rated against the revised tabular occupational extra rates.

Being an endowment assurance policy, this plan is apt for people of all ages and social groups who wish to protect their families from a financial setback that may occur owing to their demise. The amount assured if not paid by reason of his death earlier will payable at the end of the endowment term where it can be invested in an annuity provision for the rest of the policyholder's life or in any other way he may think most suitable at that time.

This policy covers the risk for triple the sum assured.

Besides the usual benefits offered by any endowment insurance plan, this policy provides for an additional insurance cover two times the sum assured in the event of a policy holder's death during the term of the policy. In other words, the death claim in the case of this policy is thrice the basic sum assured.

For instance, if a person insured for Rs 1,000 under this policy were to die before its maturity, the death claim payable would be Rs 3,000 plus the accrued bonus on Rs 1,000, the basic sum assured. If the policyholder survives the full term of the policy, the payment on maturity would be Rs 1,000 plus the accumulated bonus.

Maturity Benefit: Basic Sum assured along with vested bonuses would be payable on the life assured surviving till the end of the term.

Death Benefit: Three times the basic sum assured together with vested bonuses if any, would be payable on death of the life assured during the term of assurance.

The minimum sum assured under this plan is Rs 30,000.

Reassuring life endowment assurance plan (ING Vysya)

Reassuring life endowment plan provides both family protection and also takes care of post retirement financial needs. It is suitable for people who want to accumulate funds on a regular basis while enjoying insurance protection.

A lump sum is payable on death to the beneficiary or to the policy holder on survival to maturity which ever is earlier

Premiums are payable till death or maturity which ever is earlier.

Bonus is payable under the policy and policy holder has the option to utilise the bonus in any of the following ways:

The policy term can be 10, 15, 20 or a 30 year plan or any other term in between.

Premium can be paid yearly, half-yearly, quarterly or monthly.

Riders are available under the policy, which are additional benefits that can be availed by paying additional premium. Riders available under the policy are: Accidental Death Benefit, Accidental Death, Disability and Dismemberment Benefit, Waiver of Premium Benefit, and Term Benefit.

On the demise of the insurer, the beneficiary gets full sum assured plus bonus if any. On survival of the policy term, the insurer receives full sum assured plus bonus if any.

The maximum insurance period is 30 years. The age limit is between 12 to 55 years.