Endowment Life Insurance
The next type of life insurance we will study here is the 'Endowment' policy.
What is Endowment life Insurance? Explain its features.
These are traditional policies floated by Insurance companies. An endowment policy covers risk for a specified period, at the end of which the sum assured is paid back to the policyholder, along with the bonus accumulated during the term of the policy.
You can choose with bonus option or without bonus option right at the inception of the policy . Premium is higher in the case of a bonus option.
The returns on endowment policies are typically very low – approximately 3% to 5% per annum – and often do not beat inflation. A big reason for low returns from endowment policies is that the premiums are invested in the debt market where gross returns are low.
The sum assured is payable on the death of the assured or after the maturity period of policy whichever occurs first.
This type of policy provides the advantage of security for the family in the event of the assured’s premature death and also facilitates retirement by paying out a lump sum amount at an agreed upon age, should the assured continue to live upto that age. Generally, people try to coincide this with their retirement age of say 60 years.
These types of policies are popular in India as they combine life insurance with investments and although the premium is high, still they thrive due to the people’s desire to get some returns irrespective of the fact whether the policyholders die first or the policy expires first.