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Endowment Policy
An Endowment Policy is a contract that is aimed at paying a lump sum after a specific term (Maturity) or on the death of the policy holder, whichever comes first. Endowment policies can also be cashed in early (Surrendered) and the policy holder gets the surrender value which is calculated by the Insurance company. The surrender value is arrived at by taking into the account the duration that has lapsed since the policy started and how much was paid into it.
Therefore an Endowment Policy is a risk cover with potential for financial savings. If the policy holder survives the policy term, the sum assured has to be paid at the time of maturity. The alternative scenario is if the policy holder dies, and the sum assured has to be paid out.
Types of Endowment Policies
With Profit Endowment Policy
Under this type of Endowment Policy there is an amount guaranteed to be paid out, namely the sum assured. The premium amounts are invested in financial instruments like shares, debentures and fixed deposit schemes to name a few. If the investment give good returns, based on market performance, the final payout can be more than the sum assured of the Endowment Policy.
Unit Linked Endowment Policy
Under this form of Endowment Policy the premiums are invested in units of a unitised insurance plan. Policy holders can often choose which funds their premiums are invested in and in what proportion.
Surrendering an Endowment Policy
All Endowment Policies have a free look in period; this is usually a period of 15 days. If the policyholder has made any premium payments, this will be paid back minus any service charges.
If one is surrendering an Endowment Policy before the completion of 5 years it will have to be converted into a paid up policy, otherwise all tax benefits availed until then will be reversed.
If one is surrendering the Endowment Policy after 6 years, the policyholders have to consider a special surrender value. The surrender value depends on the premiums paid, performance of the funds as well the years left for maturity.
If one is surrendering an Endowment Policy before the completion of 5 years it will have to be converted into a paid up policy, otherwise all tax benefits availed until then will be reversed.
If one is surrendering the Endowment Policy after 6 years, the policyholders have to consider a special surrender value. The surrender value depends on the premiums paid, performance of the funds as well the years left for maturity.
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