What is endowment plan, how much returns will it provide me?

An endowment plan is a form of savings plan, with insurance component, that is design to help save up till maturity, or annual payout in the case of annuities.

There is a variant of this called Traded Endowment Policies/Plans (TEPs) which is pre-owned endowment policies that was bought-over and then re-sold by 3rd party brokers. The projected IRR is between 3.8% and 4.6%, and is usually higher projected IRR and shorter term to maturity as compared to newly incepted ones for the same policy structure.

Disclaimer: I co-founded a business trading insurance policies.

Endowment Insurance plans are designed to build up savings over a fixed term. They are typically capital guaranteed after a period of time.

The most common uses of endowment policies are:

1) providing for children’s education expenses

2) saving for personal goals

3) retirement

There are endowment plans that provide more flexibility, such as allowing for a partial withdrawal of cash value or offering yearly payouts starting from the end of the 1st policy year onwards.

Returns are anywhere between 2-4% depending on your premium and policy term.

Shorter policies provide lower returns, while longer term policies or multi generational policies can give you a higher 4% return compounded.

And because they are insurance products,

1) You may be protected against Death, Total & Permanent Disability and Terminal Illness (varies with insurers/policies)

2) You can opt for premium waivers that will allow you to stop paying premiums or a gives a lumpsum in the event of illness or death

Depending on your portfolio weightage, goals, time horizon and risk profile, endowment plans may or may not suit your needs. ​​​