An endowment plan gives your family life cover and pays you a lump sum if you survive the term. Here is how it works, who it suits and its pros and cons.
An endowment plan is one of the oldest and most familiar types of life insurance in India. In simple words, it does two jobs at once: it protects your family if something happens to you, and it builds savings that come back to you as a lump sum if you live through the policy term.
How an endowment plan works
The idea is straightforward:
- You choose a sum assured (the base amount of cover) and a policy term, for example 20 years.
- You pay a premium regularly, usually every month, quarter, half-year or year.
- If you survive the full term, you receive the maturity benefit: the sum assured plus any bonuses added to the policy.
- If you die during the term, your nominee receives the death benefit, which also includes the bonuses added up to that point.
Either way, money is paid out, unlike pure term insurance, where nothing comes back if you survive. If words like "sum assured" or "premium paying term" are new to you, read our guide on sum assured, policy term and premium paying term.
What are bonuses?
Most LIC endowment plans are participating (also called "with-profit") plans. This means the policy shares in LIC's surplus. LIC declares bonuses each year, and once a bonus is added to your policy it usually stays there. A Final Additional Bonus may also be paid at the end.
Bonuses are not fixed in advance. They depend on LIC's experience and are declared year by year, so no one can promise you a particular amount. Our LIC bonus explainer covers this in more detail.
A simple example
Illustration only, not a quote.
Suppose Ramesh, aged 30, takes an endowment policy with a sum assured of ₹5,00,000 for 20 years.
- If he is alive at age 50, he receives ₹5,00,000 plus whatever bonuses have been added over the 20 years.
- If he dies in, say, the 8th year, his family receives the death benefit (which is at least the sum assured, as defined in the policy) plus the bonuses added up to that year.
The actual premium depends on his age, health and the plan chosen.
Who does an endowment plan suit?
An endowment plan can be a good fit if you:
- want disciplined, long-term saving and find it hard to save on your own
- prefer low-risk options over the share market
- have a fixed future goal such as a child's higher studies, marriage, or building a house
- want life cover and savings in one policy
Pros and cons
| Pros | Cons |
|---|---|
| Life cover plus savings in one policy | Life cover is lower than a term plan for the same premium |
| Low risk; not directly linked to the share market | Growth is usually modest compared with market-linked options |
| Forces regular saving habit | Money is locked in for a long period |
| Loan facility on many plans | Stopping early can mean getting back less than you paid |
Because of the last point, it is important to choose a premium you can comfortably pay for the whole term. If you ever face difficulty, read about surrender value, paid-up value and policy loans before taking any step.
Endowment plan vs FD or RD
Many families compare an endowment plan with a bank Fixed Deposit (FD) or Recurring Deposit (RD). They are built for different purposes:
- An RD or FD is a pure savings product. It is flexible and can usually be broken early, but it gives no life cover.
- An endowment plan is a long-term commitment. It is less flexible, but if the policyholder dies, the family gets the full death benefit even if only a few premiums were paid.
So the real question is not "which gives more?" but "do I need protection along with savings?" Many families keep both: an FD or RD for short-term needs and emergencies, and an insurance policy for long-term goals and family protection. Tax treatment of premiums and payouts depends on the prevailing tax laws and the tax regime you choose, so please check this separately.
Which LIC plans are of this type?
LIC offers several endowment-style plans, such as LIC's New Endowment Plan (714), LIC's New Jeevan Anand (715), where cover equal to the Basic Sum Assured continues even after the term ends, LIC's Jeevan Labh (736), where you pay premiums for fewer years than the term, and LIC's Jeevan Lakshya (733). See the full list on our endowment plans page, or estimate a payout with the maturity calculator.
Want to know what an endowment plan would cost you? Get a premium estimate or talk to us.