Planning for a child’s education or your retirement? Need safety plus returns?
An endowment policy claims to give both insurance and investment. But is it really the best savings scheme for you?
Let’s understand what endowment policies offer and where they fit in your financial plan.
What is an Endowment Policy
An endowment policy mixes life insurance with savings. You get both protection and money accumulation.
How it works:
Pay a premium regularly for fixed years – say 15 or 20 years. If you die during this time, the family gets the sum assured. If you survive till the end, you get sum assured plus bonus.
Either way, money is paid out. That’s why it’s called “endowment” – it ensures payout.
Example:
Take a 20-year policy for 10 lakhs. Pay a 50,000 yearly premium. If you die in year 8, the family gets 10 lakhs. If you survive 20 years, you get 10 lakhs plus accumulated bonus (maybe 3-4 lakhs more).
Two Benefits Explained
First benefit – Life cover:
Your family gets financial protection if something happens to you. Loans get paid. Kids’ education continues. Daily expenses managed.
Second benefit – Savings corpus:
Money accumulates while you’re paying a premium. At maturity, receive a lump sum. Use for planned goal – retirement, child’s marriage, buying property.
This dual nature makes people consider it the best savings scheme option.
How Returns Work
Endowment policies don’t give high returns but offer safety.
Expected returns:
Traditional endowment: Around 4-6% yearly after charges. With-profit endowment: Maybe 5-7% if bonuses are good.
Compare this with FD at 6.5-7% or PPF at 7.1%.
Why returns are modest:
Part of your premium buys life insurance. The company deducts various charges. Agent commissions come from your money. What remains grows slowly.
Bonus addition:
Companies declare bonuses yearly. Simple bonus or reversionary bonus. Adds to your sum assured. But bonuses aren’t guaranteed.
When Endowment Policy Makes Sense
Can be part of the best savings scheme in specific situations:
Need forced discipline:
You don’t save on your own. Premium payment forces you. Miss it and policy lapses. So you stay committed.
Want absolute safety:
Can’t handle stock market ups and downs. Need guaranteed payout. Endowment gives certainty.
Specific goal with timeline:
Know exactly when you need money. The child turns 18 in 15 years. Align policy maturity with that date.
Prefer simplicity:
Don’t want to manage multiple products. One endowment policy handles both insurance and savings. Easy tracking.
Conservative family background:
The older generation trusts insurance companies. Comfortable with traditional products. Modern options feel risky.
When Endowment Isn’t the Best Choice
Not the best saving scheme if:
Want maximum returns:
Equity mutual funds give 12-15% long-term. Endowment gives 5-6%. Huge difference over 20 years.
Need high insurance cover:
An endowment gives small coverage for a high premium. Term insurance gives 20-30 times more cover for the same money.
Young with long horizon:
At 25-30, you should take equity exposure. Time to recover from market falls. Endowment’s safety is not needed yet.
Want flexibility:
Money is locked till maturity. Surrendering early means big losses. Other options let you withdraw partially.
Building retirement wealth:
Low returns mean a smaller retirement corpus. Better options exist, like NPS, PPF, and equity funds.
Comparing Endowment with Alternatives
Endowment vs Term + Mutual fund:
Endowment approach: Pay 60,000 yearly for 20 years. Get a 10 lakh cover. Maturity around 16-17 lakhs.
Separate approach: Term insurance 1 crore for 15,000 yearly. The remaining 45,000 is in a balanced mutual fund. Maturity around 28-30 lakhs (at 10% return).
A separate way gives a much bigger corpus and 10 times insurance.
Endowment vs PPF:
PPF: 7.1% returns, 15-year lock-in, no insurance, flexible withdrawals after 7 years.
Endowment: 5-6% returns, chosen term lock-in, includes insurance, rigid structure.
PPF wins on returns. Endowment adds insurance component.
Endowment vs Fixed deposits:
FD: 6.5-7% returns, various tenures, complete safety, break anytime.
Endowment: 5-6% returns, long lock-in, insurance included, costly to exit early.
FD gives better liquidity. Endowment bundles insurance.
Smart Way to Use Endowment
If you still want an endowment policy, use it strategically as part of the best savings scheme:
Get term insurance first:
Buy adequate term cover separately – minimum 1 crore. This handles family protection.
Then consider a small endowment:
For a specific goal with an exact timeline. Use as a stable component, not a main investment.
Sample portfolio mix:
Term insurance: 1 crore cover (core protection) Equity mutual funds: 50% of savings (growth) PPF or debt funds: 30% of savings (safety) Small endowment: 20% of savings (discipline + specific goal)
This balanced approach uses endowment without depending on it entirely.
The Bottom Line
Is an endowment policy the best savings scheme? Depends completely on your situation.
Good for those wanting guaranteed returns with insurance. Needing forced saving discipline. Preferring traditional products. Having specific timeline goals.
Use an endowment policy wisely as part of a diversified best savings scheme strategy. Not a complete solution. Plan smart. Invest right. Secure a proper future.