What Is Meant by Pure Endowment?


The recent pandemic has taught many that life can be very uncertain. One may have to face situations and problems they may have never imagined. And if you are the primary breadwinner of your family, such situations are even more worrying, as you are responsible for yourself and your loved ones. If anything were to happen to you, the financial state of affairs at your home can get immensely difficult. That is why one must have some kind of financial protection to help your family deal in a dignified manner during such circumstances. A pure endowment plan can be the ideal solution here.

What are pure endowment plans and how do they work?

Endowment plans are life insurance policies that provide you with life coverage with the added advantage of a savings plan. The life coverage feature of the plan is meant to provide financial help to the beneficiaries if the policyholder suffers a demise. If the policyholder outlives the maturity of the plan, then the savings plan feature kicks in. On maturity, the policyholder receives the savings that have been accumulated until then. The funds for both these purposes are derived from the premium paid by the policyholder. While one part of the premium goes to create the life cover, the other goes into accumulating your savings corpus.

Thus, endowment life insurance plans ensure that you receive the funds in either of the two situations and that your future as well as that of your loved ones are secure.

Even within the subcategory of endowment plans, there are a variety of plans one can opt for, with varying features. The term ‘pure endowment plan’ is used to refer to plans that are not concerned with the additional features and rather focus solely on life coverage and savings.

Benefits of pure endowment plans 

  • Provides guaranteed returns 

If you are looking for a plan that provides you with guaranteed returns at maturity, then endowment life insurance policies are the way to go. The portion of your premium that goes into the savings fund is invested in fixed-income assets. This reduces or almost nullifies the risk of your money undergoing any risks or getting influenced by the fluctuations in the market. So, when the policy maturity arrives, you can rest assured that you are going to receive the principal amount along with good returns without having been exposed to high risks.

  • Helps you save for future financial goals 

Buying a pure endowment plan is an effective way of inculcating financial discipline. You even get the option to choose from monthly, quarterly, and annual premium payment options. Your funds are then kept securely with the insurer for the tenure of the plan. You do not have an option of withdrawing these funds unless you surrender the plan. At the time of maturity, you receive a lump-sum pay-out which is a result of the years of savings. This pay-out can help you meet your goals, such as paying for your child’s higher education, buying a car, making the down payment on premium real estate, funding children’s weddings, and so on.

Along with these benefits, you can also increase the coverage of your plan by opting for riders, such as family income benefit add-on, critical illness add-on, waiver of premium add-on, and so on.

Things to consider before buying an endowment plan 

Have the benefits of pure endowment plans convinced you to go for them? Before you do so, ensure you keep these things in mind:

  • Review the risk factor in the policy

Even though endowment plans carry minimal or no risks, some plans may have additional features wherein your money may be exposed to a few risks. So, before you sign the policy proposal, ensure that you are okay with the risk factor present in the policy.

  • Check the claim settlement ratio of the insurer

The claim settlement ratio is an indicator of the number of claims an insurer has resolved as compared to the number of claims they have received. A higher claim settlement ratio assures you to a certain extent that, whether it is a death benefit claim or a maturity benefit claim, it will be addressed in due time and resolved quickly.

  • Read the policy wordings

One of the most important things to consider before buying an endowment plan is its wording. Each policy has its unique wordings, which lists down what is included and excluded, how the sum assured and maturity benefit aspects work, and so on. Do not sign the policy unless you have thoroughly gone through the policy wordings.