Definition
Endowment Plan
An endowment plan is a life insurance policy that combines a death benefit with a lump-sum savings payout at maturity if the policyholder survives the term.
Endowment plans are among the oldest savings-linked life products sold in India, most heavily by LIC and traditional insurers. The policyholder pays level premiums; on death during the term the nominee receives the sum assured plus accrued bonuses, while survival to maturity pays the sum assured plus bonuses as a maturity benefit.
Returns are typically modest because a large slice of the premium funds the life cover and the insurer's reserves. Most participating endowment plans declare a reversionary bonus annually and a terminal bonus at maturity, both expressed per ₹1,000 of sum assured. Critics note that the implied return often trails inflation, which is why advisers usually prefer separating protection (term plan) from investment (mutual funds).
Related terms
- Money-Back PolicyA money-back policy is an endowment-style life plan that returns a portion of the sum assured at fixed intervals during the term, with the balance plus bonuses paid at maturity.
- Participating PolicyA participating (par) policy is a life insurance plan whose holders share in the insurer's surplus through bonuses declared periodically.
- Reversionary BonusA reversionary bonus is an annual bonus added to a participating life policy's sum assured that becomes payable on death or maturity.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.