Comprehensive Guide to Buying an Endowment Plan


Rishi, age 32, worked with a private bank. His job demanded him to be on tour. So the family had to shift from one city to another. It was fine till Rishi’s son Vikram turned 10 years old. They kept on changing the schools. Seeing his performance, the couple got worried and realised that their child had to suffer because of them. Later, the parents decided that Vikram should be sent to boarding school. It was a big decision for the family, but they were serious about Vikram’s future. Though the boarding school expenses were high, Rishi thought that the child should get a quality education for his post-graduation also. After pondering the thought of quality learning, Rishi decided to save a considerable amount of his earnings. But keeping aside the portion of his salary would have led to compromise on the living expenses. This brought them to the thought of buying an endowment plan. 

If savings is on your mind for long term future goals in life, an endowment plan is the suggested cover for you. Let us explore what insurance is all about and how you should buy it.

Table of Contents.

What is an endowment plan?

Benefits/ Advantages


How and where to buy


What is an Endowment Plan?

An endowment policy is a plan that provides an opportunity for insurance and investment. The policy offers insurance coverage to provide financial security to the dependents in the family. After the demise of the life insured, the nominee receives the sum assured as the death benefit. The benefit enables the family to battle the financial obligations when the life insured passes away.

Apart from the death benefit, the importance of the endowment plan is in creating the funds that the life insured will receive on the maturity of the policy.

Benefits of the Endowment Plan.

A goal-based savings plan helps you save for your child’s higher education, repay your debts, and achieve your retirement goals. Of course, you have to time the payouts so that the amount received on maturity is best utilised in fulfilling your goals. However, the lump-sum payout can help you with your financial dreams.

These are the benefits that an endowment plan has to offer:

  • Premium payment flexibility: Endowment plans offer the benefit of paying the premium as per convenience and still reap long term benefits. This means that you can pay the premium either in a single instalment or regular payments. You also choose the free-paid up policy after your premium instalments are complete.
  • Increase the cover with Riders: Riders are additional covers that enhance the scope of the coverage. These additional covers are available at an extra nominal cost. Depending on the needs, you can choose the covers to improve the scope of insurance cover.
  • Liquidity: Endowment plan allows partial withdrawals. This is a beneficial feature that brings liquidity as in when needed. 
  • Compounded returns: Endowment plan provides compounded returns, which are earned on returns. It improves the percentage of returns made. In common, it is believed that over 30 years, the returns on endowment will be around 5.5% (Source:
  • Dual benefit: The endowment plan provides the benefit of both insurance and investment. The savings plan comes with guaranteed returns on maturity. The plan is safe and offers low risk in investment. The insurance component provides a death benefit to the nominee if the life insured passes away during the policy period.
  • Avail loan option: The significant benefit of the endowment plan is to avail the loan against the policy. If you use the policy, then you will not be required to put up any kind of collateral.
  • Assess the potential for bonuses: When buying a savings plan, you must know that the insurance company does provide bonuses. The company declares the dividend after realising its profits. Hence, you must analyse the performance of the insurance company.
  • Low-investment risks: Endowment plan does entail the investment component, but the risk of investment is low.

After looking at the benefits/advantages of the endowment plan, let us now read the disadvantages of the policy.

Disadvantages of Endowment Plan.

These are the disadvantages of the endowment plan:

  • Cash Surrender Value: The cash surrender values under the endowment plan are lower than the premiums paid by the life insured in the first few years of life. In short, the life insured will not be able to recoup all the premiums paid if the policy is surrendered.
  • Market-Linked Plans provide low returns: If you have chosen the market-linked endowment plan, its returns can be below. The premiums do not offer the same scale of returns as other investment instruments.

After evaluating the advantages and disadvantages of an endowment plan, let us now look at the comprehensive guide to buying an endowment plan.

How to buy an endowment plan?

Before buying an endowment plan, these are the things that you must remember:

  • Invest Early: When the goal is to save money for your future goals, like a child’s education, it is better to start investing early. The Sooner you start more returns you can get. Also, when you begin early, you are facilitated with disciplined savings that ensure returns with the power of compounding. 
  • Check insurers claim settlement ratio: Before you finalise your purchase with the insurance company, it is better that you check for the claim-settlement ratio. A favourable situation could be when the claim settlement ratio is above 98%. 
  • Decide the type of endowment you want to buy: When buying an endowment plan, it is important that you quickly decide on the type of the plan. Under the savings plan, a part of the premium is taken for life cover. While the other half is taken as an investment. So before buying an endowment plan, decide whether the portfolio is profit-based or non-profit based.
  • Check for the flexibility option: Check the available premium payment options. If you are a fixed-salaried employee, you can opt for a regular pay endowment plan. But if every month salary is not the case with you, you can go for a single premium payment option.
  • Choose a plan with riders: More can be good at times. The basic endowment plan can be improved with the additional rider covers. Though these riders come at an additional nominal cost, buying these covers is beneficial. Check which are the rider covers that the insurance company will offer.
  • Check your risk appetite: Check your risk appetite in terms of your premium paying capacity and returns expectations. Buy a plan after evaluating your ability.


One of the most beneficial investment choices for an individual could be an endowment plan. Despite the fact that the policy’s returns are slightly lower than those of many other products, it comes with minimal risk and high liquidity. When you weigh the advantages of an endowment plan against the benefits of any other product, you’ll realise that it’s a good choice. It can be a lifesaver in times of financial distress, allowing you to overcome any emergency with the assistance of a loan. Above all, the plan ensures complete financial security for you and your family. For more details on the endowment policy, please read here.

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