Endowment Plan: How It Pays Either Way
Paid on death within the term, or at maturity if you survive. Protection plus planned saving.
An endowment plan is a life policy that pays in either case. If the insured person dies during the policy term, the nominee receives the death benefit. If the person survives to the end of the term, they receive the maturity benefit.
Because a payout is certain one way or the other, an endowment costs more than term cover for the same sum assured. Part of the premium buys protection and part builds savings for a planned goal such as a child's education or a house.
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What an endowment pays: an illustration
Illustration only. Sunita, 35, takes a 20-year non-linked endowment with a sum assured of ₹5 lakh and pays premium every year.
Sunita dies in year 8
Who gets paid
Her nominee
What is paid
Death benefit: at least the sum assured on death, plus accrued bonuses if the plan is par
Sunita survives all 20 years
Who gets paid
Sunita
What is paid
Maturity benefit: sum assured on maturity, plus accrued bonuses if the plan is par
Sunita stops paying after year 6
Who gets paid
Sunita
What is paid
The policy becomes paid-up, or she may surrender it for its surrender value
| What happens | Who gets paid | What is paid |
|---|---|---|
| Sunita dies in year 8 | Her nominee | Death benefit: at least the sum assured on death, plus accrued bonuses if the plan is par |
| Sunita survives all 20 years | Sunita | Maturity benefit: sum assured on maturity, plus accrued bonuses if the plan is par |
| Sunita stops paying after year 6 | Sunita | The policy becomes paid-up, or she may surrender it for its surrender value |
Terms the exam uses
- Sum assured on maturity
- The fixed amount guaranteed at the end of the policy term.
- Sum assured on death
- The fixed amount guaranteed if the life assured dies during the term. It can differ from the maturity amount.
- Maturity benefit
- Sum assured on maturity plus any additional and accrued benefit (such as bonuses) payable at the end of the term.
- Par endowment
- With profits. The policy shares in the insurer's surplus through bonuses, which are added to the claim or maturity amount.
- Non-par endowment
- Without profits. All benefits are stated in advance at the start, with no discretion left to the insurer.
- Money back plan
- An endowment variant that pays part of the sum assured at intervals during the term (survival benefits), with the balance at maturity.
Rules under IRDAI's 2024 framework
- check_circleMinimum policy term for an individual savings product such as an endowment is five years.
- check_circleMinimum sum assured on death for regular premium plans: 7 times the annualised premium if the person is below 50 at entry, 5 times if 50 or older. For single premium plans: 1.25 times and 1.10 times the single premium.
- check_circleDeath benefit for regular premium plans must also be at least 105% of the total premiums paid up to the date of death.
- check_circleAfter at least two consecutive years' premiums, a non-linked endowment acquires a guaranteed surrender value. The surrender value page has the minimum percentages.
- check_circleNon-linked savings products that offer a surrender value must also offer a policy loan against it.
Insurance principles and agent duties in the IC-38 style. No signup.
Endowment vs term vs whole life, in one line each
Term pays only on death within the term. Whole life pays on death whenever it happens and has no fixed maturity. Endowment pays on death within the term or on survival to a fixed date. The full comparison is on the types of life insurance page.
How the exam tests this
The classic question describes a customer who wants "protection plus a lump sum at a known future date" and asks which plan fits. The answer is an endowment. The trap is whole life, which also has savings but no maturity date, and ULIP, which pays a lump sum that is not fixed in advance.
Another pattern: "An endowment assurance is a combination of which two plans?" The answer is term assurance plus pure endowment. A pure endowment pays only on survival; adding term cover makes it pay on death too.
FAQs
What is an endowment plan?expand_more
A life insurance policy that pays the death benefit if the insured dies during the term, or the maturity benefit if the insured survives to the end of the term.
What is the difference between endowment and term insurance?expand_more
Term insurance pays only if death happens within the term and nothing on survival. An endowment pays in both cases, so its premium is higher for the same sum assured.
Do endowment plans give bonuses?expand_more
Only par (with profits) endowments do. Non-par endowments pay only the benefits fixed at the start of the policy.
What is the minimum term of an endowment policy?expand_more
Under IRDAI's 2024 Master Circular on Life Insurance Products, the minimum policy term for individual savings products is five years.
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