An Explanation of Life Insurance and Endowment Policies

Insurance policies could be considered as one of the most important financial decisions that can ensure the protection of the policyholder and their family’s financial security in the future. There are different types of life insurance, they come and can be in many different forms. An endowment policy is a package that contains both savings and insurance features.

 What is Life Insurance?

It is a contract signed between the underwriter and the policyholder. In the case of death or holder or after a stipulated period of life assurance according to the terms, the underwriter pays a certain sum to a beneficiary. It is a risk mitigation tool wherein people are assured of their economic security in the case of the death of a person.

 Policies for life insurance can be divided into two categories:

Term Life Insurance: Term life insurance is an insurance product that is active for a fixed period in the insured’s life. It, in general, offers insurance for a certain period of five to thirty years. In that case, an insured can receive a death benefit if he/she dies. This type of life insurance, generally, does not have any cash value in it.

Permanent Life Insurance: This insurance policy covers the insured for the entire duration of his life. Permanently involved policyholders can accrue savings in an account that is often replenished in parallel with the amount of insurance. Different categories of permanent insurance include whole life, universal life and variable. Some of them are developed to meet the policyholders with flexibility in the degree of premiums which enable one to invest while in others the flexibility is limited.

 What is an Endowment Policy?

In simple terms, endowment policy means life insurance with constituents that make it a scheme in savings or investment. While term insurance bears payable death benefits, on the other hand, endowment insurance has this added element of saving that makes up for part of the face value payable at death and grows over a period in the life of a policy.

  Important Characteristics of Endowment Policies

The following few features are the keys to endowment policies, making it rather quite an attractive proposition for a person concerned with financial protection along with growth in savings:

 Savings and Investment Component: The premium for an endowment policy is partially channelled to an investment or savings-based fund. The latter generally grows over the long term either through interest rates or with returns based on equity. This only further assures the assured stipulated rise in cash value stated in the policy.

 Fixed Premiums: The majority of the policies governing endowment policies are fixed premiums payable during the life of the policy. It brings in an element of predictability and easy budget provisions to be made on the part of the policyholder. It ensures that the cost of insurance remains normally stable, hopefully manageable, over a very long time.

 Tax Benefits: Premiums that are paid towards such policy are allowed as a tax benefit under Section 80C of the Income Tax Act, 1961. Maturity proceeds or death benefits are normally exempt from tax under Section 10(10D) of the Income Tax Act, though some riders and conditions to this regard shall be applicable.

 Benefits of Endowment Policy

The best way of doing the following as well as getting access to the subsequent is via endowment policies:

 Financial Security: The endowment policy ensures definite payment on a lump sum amount either on expiry of the term of the policy or at the death of the policyholder, whichever is earlier, and hence it finances some form of protection or security to the insured and his/her nominees.

 Growth in Savings and Investment: The saving element under the endowment policy makes it grow with assured interest, hence ensuring disciplined saving and investment growth about the performance of selected investment funds.

 Risk Management: Endowment policies ensure a place for cautious investment and hence assure returns for a person who needs capital conservation and predictable savings.

 Legacy Planning: Endowment policies play a very important role in the issue of legacy planning. The policyholder, through this, guarantees a monetary legacy left behind to the people concerned or even only monetary gifts left back to any charitable cases.

 Things to Consider Before You Decide to Take an Endowment Policy

 Policy Term: The number of years that you want to get covered for will be decided based on the planning objectives set, for instance, a plan for the education of your child, for purchasing a residential or investment house, or for retirement planning.

 Premium affordability: Decide whether one can afford to pay for the computed premium, then resolve to pay that very amount month on month for the length of time for which the policy has been effectuated. Decide on a premium pay frequency corresponding with the cash flows and budgeting: monthly, quarterly, or annually.

 Sum assured: The sum assured has to be worked out keeping the immediate financial needs of your family in mind; also, consider what per cent of the outstanding debt is payable and which expenses in future may get affected due to this inflation. 

 Check for the reputation of the insurer: The market reputation and financial security that the company issuing your policy enjoys have to be studied. Check their claims ratio concerning the quality of settlement and customer service given against the market presence guarantees for the trust and confidence in the capacity to deliver consequences.


Whether it be a life insurance or endowment policy, the considerations for the same have to suffice with financial goals, risk bearing, and investment choices of the individual. While protection from contingencies very considerably forms the core of life insurance, endowment policies are essentially unique mixes of insurance coverage and growth in savings added to something which would even suit broader financial planning. Knowing the features and benefits of the endowment policies will thus help you reach a decision that will work toward your financial aspirations. Take up the right life insurance or endowment policy that would meet the current and future financial requirements of your family effectively after consulting your financial advisor further.


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