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What is Endowment Plan

Indian Endowment Plans

An endowment plan is a type of life insurance policy that not only provides coverage to the policyholder but also serves as a savings instrument. Endowment plans are particularly popular in India because they offer a dual benefit of insurance and investment, which helps individuals meet their financial goals.

How does an endowment plan work?

An endowment plan requires the policyholder to pay a regular premium for a specific period of time, which is known as the policy term. The policy term can range from 10 to 30 years, depending on the insurer and the type of plan. At the end of the policy term, the policyholder receives a lump sum payout, which includes the sum assured and any bonuses that may have been accrued over the years.

Endowment plans are of two types - participating and non-participating. Participating endowment plans distribute the profits made by the insurer among the policyholders in the form of bonuses. Non-participating plans, on the other hand, do not offer any bonuses.

Benefits of endowment plans

One of the main benefits of an endowment plan is the life insurance coverage it provides. In the event of the policyholder's untimely death, the sum assured is paid out to the nominee, which can help provide financial stability to the family.

Another benefit of an endowment plan is the savings component. As the policyholder pays regular premiums, a portion of the premium is invested in a variety of instruments such as stocks, bonds, and government securities. This can help the policyholder build a corpus over time, which can be used to meet various financial goals such as buying a house, funding their child's education, or planning for retirement.

Endowment plans also offer tax benefits under Section 80C of the Income Tax Act. The premiums paid towards the policy are eligible for a tax deduction of up to Rs. 1.5 lakh per annum. Additionally, the maturity proceeds of the policy are tax-free under Section 10(10D) of the Income Tax Act.

Choosing the right endowment plan

When choosing an endowment plan, it is important to consider the following factors:

Premium: The premium paid towards the policy should be affordable and should not cause a strain on the policyholder's finances.

Policy term: The policy term should be chosen based on the financial goals of the policyholder. A longer policy term can result in higher returns, but it also means a longer commitment towards paying premiums.

Sum assured: The sum assured should be adequate to provide financial security to the policyholder's family in case of their untimely death.

Bonus structure: If opting for a participating plan, it is important to understand the bonus structure of the insurer and their track record in distributing bonuses.


Endowment plans are a popular investment option in India as they offer a combination of life insurance coverage and savings. They provide a guaranteed sum assured, tax benefits, and a potential for higher returns through bonuses. When choosing an endowment plan, it is important to consider the premium, policy term, sum assured, and bonus structure to ensure that it aligns with the policyholder's financial goals.


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