What is Endowment Plan? - Meaning & How It Works

An endowment policy combines the benefits of both life cover¹ and savings. It is a reliable way to build wealth while ensuring financial security for your loved ones because the returns are fixed at the time of purchasing the plan. The life cover¹ and the guaranteed return^# act as a safety net for your family in times of need.

With assured maturity and death benefits, an endowment policy can help you achieve multiple financial goals.

How does an endowment plan work?

Endowment plans provide you with life cover¹ and also help you grow your money. The life cover¹ secures your loved ones financially in case of an unfortunate event while the returns from the plan help you achieve your financial goals.

Endowment plans offer you the flexibility to choose the premiums you want to pay towards your plan. You may pay your premiums monthly, half-yearly, yearly or all at once depending on the type of plan you choose. The life cover¹ offered by your endowment plan would be 10 times your annual premium.

Endowment plans provide you with a fixed amount called the maturity amount at the end of the tenure of the plan. This maturity amount is fixed at the time of the purchase of the plan itself and is free from any market fluctuations.

In case of an unfortunate event during the tenure of your plan, your loved ones will receive the life cover¹ amount offered by your plan and any additional amount as specified in your plan.

Why do you need an endowment plan?

An endowment policy can help you save and build wealth for your goals. These might be your self-goals or your family goals like retirement, start-up venture, travelling across the world or child’s higher education. With the dual benefit of a life coverage and the guaranteed returns^#, it ensures financial security without exposing you to high market risk.

It is an excellent addition to your portfolio, providing stability and peace of mind for your future.

What are the features of an endowment policy?

Below are some key features of an endowment policy:

Guaranteed returns^# : Your investment grows steadily with assured returns
Sum assured on death : In the unfortunate event of the policyholder’s demise, the nominee receives the sum assured, ensuring their financial security
Bonus payouts : Many endowment plans offer bonuses^# declared by the insurer, which enhance the overall returns
Low-risk investment : Endowment plans provide financial stability with minimal risk
Tax* benefits : Premiums paid for an endowment plan are eligible for deductions under Section 80C, and the maturity or death benefits are tax*-free under Section 10(10D) of the Income Tax Act*, 1961, subject to conditions

What are the benefits of an endowment policy?

Life cover

An endowment policy offers a life cover¹ that can help you secure your loved ones financially in your absence. The plan pays an assured payout to the nominee in case of an unfortunate incident during the policy term.

Wealth creation

An endowment plan can be used to create wealth. The plan offers guaranteed returns^^ that can help you save wealth for your future needs.

Maturity benefits

An endowment policy offers a maturity benefit to the policyholder when the tenure ends, ensuring future financial stability.

Flexibility in paying premiums

The premiums for an endowment plan can be paid in flexible instalments, either monthly, semi-annually, annually or all at once.

Tax benefits

The premium paid towards an endowment plan qualifies for a deduction of up to ₹ 1.5 lakh subject to conditions prescribed under Section 80C^* of the Income Tax Act, 1961. Additionally, the death benefits are exempt subject to conditions prescribed under Section 10(10D)^*.

^{^^} TnC apply

What types of endowment insurance policies are available in India?

Below are the different types of endowment insurance plans available in India:

Full/With profit endowment policy: The plan provides a life cover¹ along with bonuses^# declared by the insurer, which are added to the sum assured over time
Low-cost endowment policy: The premiums are generally lower than the traditional endowment plans
Non-profit endowment policy: The plan offers a guaranteed^# maturity amount and a death benefit without any additional bonuses^#
Limited premium payment endowment policy: The plan requires you to make the premium payment for a limited period. However, the coverage continues for the full term, securing your loved ones and providing you with financial security
Money-back endowment policy: This type of plan provides periodic payouts during the policy term instead of a lump sum at maturity. They offer liquidity along with savings while securing your loved ones in your absence

Who should consider buying an endowment plan?

An endowment plan can be ideal for creating an alternative source of income. It can offer you a lump sum income in the future. In addition, the plan provides your loved ones with financial protection in case of an unfortunate event. This type of life insurance can be suitable if you want to build savings at low risk while securing your loved ones financially.

What is an endowment fund?

An endowment fund is a type of insurance plan that provides fixed returns along with a life cover¹ that protects the financial needs of your loved ones. It can be used to build low-risk savings for your future needs and to secure your family in your absence. Here are some characteristics of an endowment fund;

Dual benefits of insurance and savings
Low-risk savings and guaranteed returns^{^^} at maturity
Flexibility to select the premium payment method
Tax benefits under Section 80C^* and Section 10(10D)^* of the Income Tax Act, 1961

^{^^} TnC apply

Things to consider before buying an endowment policy

Below are some things to consider before buying an endowment policy:

Evaluate your financial needs: You must choose an endowment policy that aligns with your financial goals
Understand the features and plan type: Ensure you are familiar with the different types of endowment policies and their benefits before making a choice. You can visit different insurer’s website and read the product brochure to know more about the plan and understand how it solves your needs
Assess the premium and returns: It is important to check the premium payment terms and affordability and ensure they suit your budget. You can use the online endowment plan calculators to check the returns needed for achieving your goals depending on the amount you are comfortable to invest
Factor in tax benefits: It is essential to consider the tax* advantages under Section 80C and Section 10(10D) to optimise your financial planning

Frequently asked questions

1. What is the difference between an endowment and a money back policy?

Both endowment and money back policy are life insurance policies with savings/investment feature. Traditionally, these policies are distinguished by the payout structure. Endowment policies offer lump sum payout while money back policies offer regular and lump sum payout. Recent product innovations have blurred the lines with both endowment and money back plans providing regular, lump sum and additional benefits on top of life coverage to the policyholders.

2. What happens when an endowment policy matures?

Upon maturity of an endowment policy, you receive the accumulated savings along with any applicable bonuses^#. This helps you ensure financial security for loved ones and future needs.

3. Are endowment plans tax-free?

Maturity proceeds from endowment plans are generally tax*-free under Section 10(10D) of The Income Tax Act, provided the policy meets the specified conditions. Additionally, premiums paid qualify for deductions* under Section 80C.

4. What are the guaranteed return components in an endowment policy?

An endowment policy provides a guaranteed^^ maturity benefit if the policyholder survives the policy term. It also offers a guaranteed^{^^} death benefit in case of an untoward incident during the policy term.

The policy may also offer bonuses; however, these values are not guaranteed and can vary depending on several factors.

5. Can I take a loan against my endowment policy?

Yes, you can apply for a loan against your endowment policy. However, you must refer to your policy document for specific terms and conditions before applying for a loan.

6. How are premiums calculated for an endowment policy?

Premiums are calculated based on factors such as the sum assured, your age, policy tenure, gender and other relevant details.

7. What are the factors to be considered before buying an endowment policy?

You must consider the premium payment terms, total premium amount, bonuses offered and the reputation of the insurance company before buying an endowment policy.

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8. What are the extra bonuses provided in an endowment policy?

An endowment policy may offer extra bonuses, including accrued reversionary bonuses, interim reversionary bonuses and a terminal bonus. Reviewing the policy documentation to understand the specific terms and conditions associated with these bonuses is essential.

9. How can I decide whether to get an endowment policy?

Deciding whether to get an endowment policy depends on your financial goals and risk tolerance. If your primary goal is to save money for long-term objectives while minimising risk, an endowment policy could be a suitable choice. Endowment plans offer a dual combination of life insurance coverage* and savings with guaranteed^^ benefits, making them a low-risk investment option.

However, it is important to consider factors like the policy's premium, policy term and expected returns when making your decision. Additionally, you must compare different endowment plans to select one that aligns with your financial goals and risk appetite.

10. When is the right time to buy an endowment plan?

The right time to buy an endowment plan depends on your financial goals and individual circumstances. While there is no appropriate time, starting early can offer distinct advantages. Buying an endowment plan at a younger age provides you with a longer savings period. This allows you to accumulate substantial savings over time. Premiums are also generally lower when you are younger.

Additionally, buying an endowment policy early ensures your loved ones' financial security in the event of an untimely demise. If you have specific long-term financial objectives like purchasing a house or funding a child's education, purchasing an endowment plan early can help you work toward these goals.

11. Can the beneficiary of my endowment policy be changed?

Yes, in most cases, you can change the beneficiary of your endowment policy. It is advisable to review and update your beneficiary with respect to changes in your life stage, such as marriage, divorce, the birth of a child or the demise of a beneficiary. This ensures the policy's benefit goes to the intended person according to your current wishes.

12. Does an endowment plan provide a lump sum payout?

Yes, an endowment policy provides a lump sum payout at maturity as long as the policy is active and all premium payments have been made. You receive the predetermined lump sum amount, also known as the maturity benefit, at the end of the policy's term. This lump sum can be used for various financial goals, such as covering retirement expenses, buying a house or any other intended use.

13. Can I discontinue my policy?

Yes, you can discontinue your endowment policy by surrendering the policy. However, it is important to consider the implications of this action. Surrendering a policy means you will not receive the full maturity benefit and may lose out on potential bonuses and savings. It is advisable to carefully evaluate your financial situation and the reasons for discontinuing the policy before making a decision.

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Disclaimers

¹Life cover is the benefit payable on death of the Life Assured during the policy term.

^{^}For all plan options, on survival of the life assured till the end of policy term for a fully paid policy, Maturity Benefit will be sum of

Sum Assured on Maturity, plus

Balance in the Savings Wallet (if any), plus .

Terminal Bonus (if declared)

The Sum Assured on Maturity shall be the sum of Annualised Premium payable under the policy.

In all plan options, guarantee is in the form of ‘Guaranteed income’ as regular income and ‘Sum assured on maturity’ as a part of Maturity Benefit. Additionally, in ‘Immediate Income with booster’ plan option, the ‘Guaranteed booster’ also forms a part of guaranteed benefits. Guaranteed returns are payable subject to all due premiums being paid and survival of the life assured

^*Policies issued on or after April 01, 2023 where aggregate premium(including top-up premiums and rider premiums) payable during the term of the policy/policies in respect of Non-unit linked life insurance policies more than Rs 5 lakh per year per person is not exempt u/s 10(10D). Tax benefits/Tax-free returns under the policy are subject to conditions under Sections 80C, 10(10D), 115BAC and other provisions of the Income Tax Act, 1961.Taxes, if any will be charged extra as per applicable rates. Tax laws are subject to amendments from time to time. Please consult your tax advisor for more details.

^~Income: In plan option ‘Immediate income’ and ‘Immediate income with Booster’, starting from the first policy year till the end of the policy term, you will receive a regular income at the end of every policy year/month, as chosen by you, provided the policy is in-force. For “Immediate Income with Booster”, along with the regular income, you will also receive a benefit (known as Guaranteed Booster) every 5th policy year provided the policy is in-force. This Guaranteed Booster will be equal to 100% of the Guaranteed Income, as applicable for the year of payment.

In ‘deferred Income’ plan option, you will receive regular income at the end of every year/month, starting from end of deferment period as chosen by you, provided the policy is in-force. You can start this income as early as 2nd policy year or as late as Premium Payment Term plus 1 year.

This regular income will comprise the following:

Guaranteed Income (GI) and

Income which will be linked to Bonus, if declared; referred to as Cash Bonus (CB) You will receive this income till the date of maturity, death, surrender or lapse of the policy, whichever happens first.

^$Savings wallet: You have an option to accumulate the Survival Benefit, instead of taking the same as a periodic payment during the policy term. You need to opt in for this feature through explicit consent vide request submitted to Us, whereby the Survival Benefit when due will be transferred to the Savings Wallet. Upon crediting the Survival Benefit in the Savings Wallet on the due date, the Survival Benefit will be deemed to have been paid and any amount within the Savings Wallet will be non-participating in nature. This option can be opted for and opted out of at any time during the Income Term. The money within the wallet will be accumulated daily at an interest rate linked to the Reverse Repo Rate published by Reserve Bank of India (RBI). The interest rate used for accumulation under this feature will be reviewed twice every year on 1st of June and 1st of December, and will be set equal to Reverse Repo Rate published on RBI’s website as on the review date. The current Reverse Repo Rate as at June 1, 2022 is 3.35% p.a. In case the balance in the wallet is not withdrawn completely during the income term, such balance will be paid to the claimant in the event of death, surrender or maturity, whichever is earlier along with other benefit payments (if any). On payment of this benefit, the policy will terminate, and all rights, benefits and interests under the policy will stand extinguished. Please refer to the sales brochure for more details.

^{^^}Guaranteed benefits are payable depending on the plan option chosen, subject to all due premiums being paid.

^#Guaranteed benefits and bonuses are subject to the terms and conditions of the policy. Please refer to the respective policy documents for complete details

ICICI Pru Gold (Non-linked Participating Individual Life Insurance Savings plan) – UIN:

E/II/0700/2022-23

COMP/DOC/Aug/2025/228/0989

Endowment policy - meaning and definition

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