Endowment Policy

February 10, 2011   ·   0 Comments



Lesson 4:


Endowment policies cover the risk for a specified period at the end of which the sum assured is paid back to the policyholder along with all the bonus accumulated during the term of the policy. It is this feature – the payment of the endowment to the policyholder upon the completion of the policy’s term – which rightly accounts for the popularity of endowment policies.


An endowment policy is a life insurance contract designed to pay a lump sum after a specified term (on its ‘maturity’) or on earlier death. Typical maturities are ten, fifteen or twenty years up to a certain age limit. Some policies also pay out in the case of critical illness.



Comparison of Endowment Insurance for a 25 Year Old person for a 10 Lac Cover for a 25 Year Policy from Different Companies:

S. No. Companies Max Tenure Price
1) LIC Endowment Assurance – (R.P) 55 Years 36,897 Rs.
2) LIC Jeevan Mitra (Double Cover Plan) 30 Years 39,710 Rs.
3) LIC Jeevan Anand 57 Years 39,750 Rs.
4) Max – Life gain Endowment Plan 40 Years 43,780 Rs.
5) LIC Jeevan Mitra (Triple Cover Plan) 30 Years 42,523 Rs.
6) ING Vysya Reassuring Life Endowment Plan 30  Years 33,394 Rs.
7) HDFC Life – Endowment Assurance Plan 30 Years 36,330 Rs.
8) Bajaj Allianz Life Invest Gain – Economy 40 Years 31,441 Rs.


How about the Lum Sum Amount which I am going to Get at the End of 20 Years?

The Thumb Rule to Calculate the Maturity Amount is to Double the Sum Assured. Plus There will be some Bonus which will be Given which will additionally Boost the Maturity Amount.


How to Calculate Bonus Amount?

Generally Company Pays anything Between 40-45 Rs. For Every 1000 Rs. Sum Assured. Taking as 43 Rs. As an Average Bonus

If I Paying for a 25 Year Policy and Paying a Premium of say 35,000 (Taking any Average Policy)

Then Invested Amount= 35,000*25= 8,75,000 Rs.

Total accrued simple reversionary bonus = 10,000,000/1000*43*25 = 10,75,000 Rs.

How much Comes out to be Maturity Amount?

An Endowment policy would look like this for a 25 yrs old for a 25 Year Policy

Tenure : 25 yrs
Yearly premium : 35,000
Sum Assured : 10 Lacs
Maturity amount : 30.75 Lacs ( this you get when you survive full tenure , It includes the sum insured + Bonus accrued)

This is a rough Calculation & can Vary depending on Policy to Policy.

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What is the Return from a Endowment Policy?

This can be easily calculated by putting it in Annuity formula is :

= Amount paid per year * [ {(1+r)^n – 1}/r ] * (1+r)
Here n = 25 years
and r = rate of interest earned

Putting all these values

30,50,000 = 35,000 * [{(1+r)^30 -1}/r] * (1+r)

Rate of Interest Comes out to be 8.68 %


What Makes Endowment Policy Popular Among People?

Lot of Endowment Policy comes with Whole Life Plan i.e. Even after you Stop Paying Premiums they will give you an Insurance Cover. These are the Few Reasons due to which Endowment Policy are Popular Among people:

  • Sum Assured with Bonus on Maturity.
  • Limited premium payments.
  • Whole life risk cover, even after you stops paying premiums,
  • Double accidental cover upto age 70.
  • Encashment/Surrender of the policy after maturity. [New Feature added to this   plan]
  • Loans available. [Interest charges as per prevailing rates]
  • Tax Savings available as per income tax rules


How is Jeevan Anand?

First of All, we are picking up Jeevan Anand because this is one of the Hottest Product in the Market basically due to reason that Insurance Cover till Age of 75 Years even if you have stopped paying the Premium of the Policy.

An Approx Rate of Interest for Jeevan Anand Come sout to be 7.8% due to High Premium of 40,000 Rs.

Again a Million Dollar Question:


Should I Buy Endowment Policy?

Well Answer to this Million Dollar Question is a simple One & That’s is NO. Here are the Reason why we feel this is not the Right Policy for you:

1)      The Insurance Covered by the Policy is ridiculously Less. If you are taking an Insurance Policy, then First thing it should Provide is Good Insurance Cover which it fails to do so.

2)      The Returns offered by Endowment Plan is too Less if we compare the Other Investment Plans which have an Investment Horizon of 20 Years. One of the Standard Belief is that if you Double your Money in 10 Years, then your Money is net the Same Worth what is 10 Years Back due to Inflation.(I am talking about the Buying Power of Money)With your Investment of 8,75,000 Rs. Doule it in 10 Years i.e. 17,50,000 Rs. Again Double it for Next 10 years. 35 Lac Rs. With 20 Year Investment Frame. But Endowment Policy Fails to Even Achieve that.

We’ll Cover in Coming Posts that what is the Perfect Combination of Insurance & Investments that should be taken for one’s Portfolio for creating a Wealth for you.


If you are looking to learn about basics of stock market and derivative market, then you can refer:

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Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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