Pure Endowment Plans
A Pure Endowment plan is the opposite of a term insurance plan. In this plan the Lic company promises to pay the life insured a specified amount (sum insured) only if he/she survives till the policy term. If the life insured dies during the policy period nothing will be payable.
- So in short, this plan offers only maturity benefit in the event of the life insured surviving the entire tenure of the plan. There is no death cover.
Naveen takes a pure endowment plan from insurance company xyz for a sum insured of 75 lakhs for 30 years. The Policy document specifies that if Naveen survives the entire policy term of 30 years, the insurance company will pay Naveen a sum of Rs. 75 lakhs on the maturity of the policy.
However, if Naveen dies during the policy term of 30 years then he will not get any death cover.
Life is very uncertain. People like Naveen will never be able to decide whether a term insurance plan or a pure endowment plan is appropriate for their needs as they don’t know how long they will survive or when they will die.
So if Naveen takes a term insurance plan for 30 years and survives for the entire duration of the plan, then at the end of 30 years he will not receive anything. At the same time, if he takes out a pure endowment plan for 30 years and then unfortunately dies during its term then again his nominee/beneficiary will not get anything.
Situations like the one mentioned above can confuse people about which insurance plan to choose, in order to resolve the above situation, life insurance companies have combined the features of the above two plans and offer them as an endowment insurance plan.
Lic Endowment Policy
A Lic endowment plan is basically a combination of a term insurance plan and a pure endowment plan. It offers death cover if the life insured dies during the term of the policy or survival benefit if the life insured survives until the maturity of the policy.
Naveen takes out a Lic endowment plan for a sum insured of Rs.75 lakhs for 30 years. The policy document specifies that if Naveen survives the entire policy term of 30 years, the insurance company will pay him a sum of Rs.75 Lakhs and the policy will be closes.
The above plan is a combination of:
- One term insurance plan of Rs. 75 lakhs for 30 years; and
- One pure endowment plan of Rs. 75 lakhs for 30 years.
So if Naveen dies during the policy tenure, the term insurance plan will pay out, but if he survives the entire policy tenure of 30 years then the pure endowment plan will pay out.
Most insurance plans offered by life insurance companies in India are a combination of term insurance and pure endowment plans.
Lic Endowment Plan Features
- Death cover: If the life assured dies before the maturity, then the death benefit is paid to the nominee / beneficiary.
- Saving element: After deducting the administration charges and death cover charges from the premium, the remaining amount is invested by the company on behalf of the life insured. The returns earned are later paid back to the life insured in the form of bonuses.
- Goal-bases investment: Endowment insurance plans can also be brought for accumulating money for specific purposes like a child higher education or marriage etc.
- These plans also come in different variants. Some plans have a higher death cover than the maturity benefit and vice versa.
- In some plans the maturity benefit is double the death cover. This type of plan is known as a Double Endowment Insurance Plan.
Participating and non-participating policies
Most Lic endowment plans/policies have a savings element included in the premium. This amount is invested by the insurance company on behalf of the policyholders and earns a profit on it. This is again distributed back to the policy holders in the form of bonuses.
Such plans where the policyholders are entitled to participate in the profits of the insurance company are known as ‘with-profits’ plans or ‘participating’ plans. Most endowment, money-back and whole life plans are participating plans.
Plans in which the policy holders are not entitles to participate in the profits of the company are known as ‘with-out-profits’ plans or ‘non-participating’ plans. Pure term insurance plans are an example of ‘without-profit’ plans.
|Tenure of policy: 30 years.|
|Sum Assured : Rs.10,00,000.|
|Premium : Rs.28,500 / year.|
|Total Paid : Rs.8,55,000 for 30 years.|
|Money received in case of Death : Rs.10,00,000 + bonus till the year of death.|
|Money received in case of survival: Rs. 25,00,000 (Inclusive on Bonus).|
LIC Endowment Plans / Policies