The circle of life is uncertain, and death is an inevitable part of it. You never know what can happen tomorrow or after a few minutes. So, it is certainly a matter of stress about what to do about your family or deal with it in case of any difficult situation. Thus, life insurance is a shield of the savior. In this article, we are going to cover Life Insurance Endowment Plan Return Calculation.
What Do You Mean By Life Insurance Endowment Plan?
In this article
Imagine you’re 24 years and the youngest learner in your family. So, you would always try to protect your family from any unusual happening. You ask your elders, friends, and Google. After a lot of research, you realize that there are many cheap plans, but they don’t cover any guaranteed return. As in the case of your survival, you won’t get any return.
Since you’re so young, you must require a requisite coverage of at least 45-50 years. Thus, the Endowment Life Insurance scheme guarantees an assured return. Even if you long life, you get your premium amount with interest. In case of any mishap, you receive a lump sum amount.
For instance, you made a policy of Rs. 10 lakh. On it, the interest gets added. Gradually the amount will increase. If you meet an unfortunate death, your family gets the amount. If not, you can enjoy it as a savings plan after its maturity.
Thus, an endowment life insurance policy is a sum of life insurance plan with a maturity benefit. You can get a life insurance scheme. Even if it’s not exhibited, you still avail of a lump sum maturity benefit. It provides a dual role in a single plan.
There are two types of life insurance endowment plan- profitable and non-profitable. There are huge variations in endowment policies with these two classes. There are plans structured to meet the expenses of life protection, child education, etc.
The return rate on the life insurance policy completely relies on the bonus portions, as exclaimed by the insurer. You should check out what is the ideal cover for a life insurance.
Facilities Of Life Insurance Endowment Plan
There are some key features you must know before investing-
i. You must mention a nominee in your investment. In case of your death, the sum assured gets granted to your nominee. If you survive till the tenure of the policy, you get it as a lump sum saving. The nominee can be your legal heir or your wife, or anyone you trust.
ii. The endowment policies not only build the tomorrow of your family if you’re there or not. It also looks forward to making your future fruitful with some regular savings now.
iii. You can pay the premiums monthly, quarterly, half-yearly, and yearly. Yet you’ve to regular.
iv. You can also avail of additional riders like serious illness, personal accidents, or any disability benefit. Suppose you’re suffering from any illness; you shall get additional rider benefits.
A life insurance endowment plan’s key benefit is to make a secure seat for your loved ones. Under Section 80C and 10D of the Income Tax Act, you can avail loan against this policy under any monetary urgency.
Advantages Of Life Insurance Endowment Plan
The life insurance endowment plan offers a wide range of advantages like-
a. Dual Benefit- The endowment life insurance policies pose a safe side to both sides of the coin. Be it your presence or absence with your family; it always focuses on making it comfy.
b. Diligent Savings- The companies set aside regular premium deductions. It’s deducted every month/year whenever you’ve set. It encourages a disciplined approach to savings.
c. Assured Bonus- The endowment plans come up with assured bonuses. Although there are a variety of bonuses, the one that suits your policy gets implied. But in the end, you get a pocket full of bucks, much more than your base amount—so much happiness in one sack. Great, isn’t it?
d. Loan Facility- You can also take a loan from your endowment policy in case of an emergency. However, you need to surrender collateral to avail. Based on the collateral, the loan gets processed. For example, you can use gold as your collateral for loan processing.
e. Premium Flexibility- It is one of the most important advantages of an endowment life insurance policy. You can provide premiums for a short period but enjoy it for the long term. In case your premium ceases after few years, before the tenure, a free paid-up policy can be input. It gets implemented even for a small amount.
f. Additional Riders- You can also avail of the additional rider options from the insurance company. If it’s about marriage/education/illness/accident, you’re free to get enjoy this.
Rider Benefits Include:
- Family income
- Serious illness
- Total/partial disability
It is the same as the common understanding as an extra reward on the base amount. In a life insurance policy, an additional amount gets accrued to your base amount every year. This amount gets paid to you only after it matures the plan or unusual death.
The regular premiums paid by you for the policy subscription gets accumulated with the insurance company. The company used these assets to pay claims. The company invests a large number of funds in government-secured debt instruments. Out of the earnings gathered, the company distributes to its customers as bonuses.
1. Simple Reversionary Bonus (SRB)
It’s declared on an annual basis. It’s calculated on the total amount paid. It gets accrued to pay you at the time of policy maturity.
For example, you hold a policy of 2 lakh. As per SRB, a declaration of Rs. 25 per 1000 assured.
2. Compound Reversionary Bonus (CRB)
It’s calculated as a percentage of the total sum assured. It also includes all the previously accrued bonuses. Each year’s bonus gets added up to the sum assured. The amount gets totalized, and on the enhanced amount, next year’s bonus gets calculated.
For example, you have a policy of 1 lakh. According to the CRB policy, you avail of a bonus of 3% throughout the term policy. Thus, the CRB accrued at the end of the 10th year is quite a lot.
3. Terminal Bonus
It is also known as a persistent bonus. Your overall participating policy performance indicates the payment of this bonus. It’s paid at the end of the policy maturation or death of the subscriber.
4. Interim Bonus
It is usually declared at the end of the year. In case, between two financial years, if the policy matures or death of the subscriber occurs, it is payable. There lies a short period between the bonus declaration’s date and the policy maturity date when the policy has not received a bonus. In such cases, the company decides an interim bonus rate on a pro-rata basis on which bonus gets added.
5. Cash Bonus
The insurance company pays the bonus accrued at the end of the year in the form of cash. You can avail extra cash in your hand at the end of each year and don’t have to wait till the policy gets matured.
The rate of bonus accrued depends on various factors like-
- The plan and term policy.
- Investment experience of your insurer.
- The surfeit was gathered during the year.
The gratuity exclaimed is always accrued based on the total amount and not only the installments.
Some Popular Life Insurance Endowment Plans And Schemes
Mentioned below are some of the popular endowment schemes-
- LIC Jeevan Anand
- LIC Jeevan Rakshak
- HDFC Life Sanchay Plus
- LIC Nav Jeevan Plan
- ICICI Prudential Assured Savings Insurance Plan
- LIC Jeevan Pragati
Life Insurance Endowment Plan Rate Of Return On Maturity Calculation
These are the steps to calculate Rate Of Return On Maturity from an Endowment life insurance
Mentioned below are a few steps to calculate the rate of return on maturity from an endowment life insurance-
Go through the document clearly. Look for the policy years, cash flow, tenure, etc. in it. Make a table with Year, Premium, Charges, Final Amount, Bonus, And Balance as columns.
Charge deduction gets decided by the government or the insurer, or the bank. The final amount is the premium amount after taking away from charges. On this final amount, the interest gets added. The amount you get at the end is the balance.
Calculate your charges. It differs almost every year.
For example, while LIC’s BIMA account imposes 27.5% of your installments in the 1st year while 7.5% in the 2nd year. Likewise, ICICI Pru Savings Suraksha provides a 5% maturity benefit for the first 5 years.
So, deduct all provider charges from your yearly premium. All subtract tax impositions. Add interest or bonuses.
Similarly, make calculations for the upcoming years till you arrive at the end of your tenure period. Make sure you add the first year’s balance to the amount you get in your second year.
The interest rates and bonuses vary and depend on a variety of criteria. Since it is so variable, it is better to distract them while scheming your calculations. It may be 7-8%, as mentioned by the insurer, or 1%; it’s not in our hands.
Mentioned below is an example to make your understanding more clear.
Life Insurance Endowment Plan Return Calculation
Now, let us know how to calculate return plans on the life insurance endowment plan. For instance, purpose, let us take an example on ‘LIC Jeevan Pragati’ using MS-Excel-
First of all, lay a strict eye on the following details-
- The start and end date of the policy commencement.
- The tenure of the life insurance endowment plan.
- The total assured sum.
- The installment amount. You can pay it per month or on an annual basis.
LIC Jeevan Pragati provides Simple Reversionary Bonuses. It is payable annually with a one-time bonus paid at maturity or in case of death of the policyholder. For example,
In the next step, check your bond policy. Find the gratuity type that would suit your scheme. Collect your previous year bonuses. It can get collected from the insurance agent or his portal.
Find out the year of commencement to its maturity. Next, you need to go for your respective installment sum.
It continues for 20 years.
In the first column, the policy year depicts the number of policy years. The cash flow is the extraction of money as an installment from your pocket. That is why it is negatively signed.
If you’re a single endowment plan, key-in the single installment amount on the 1st policy year. All the other cells you must leave as zero/blank.
Enter the installment amounts in the first 10 cells if your endowment policy is a premium limited one. For example, a 20-year option can have 10 LPP option.
Out of all steps, this is the most important one. You can compute the total tenure period by considering the total amount assured with the gratuity.
Likewise, it continues for 20 years with a total sum of Rs. 45,000.
Maturity benefit= Assured sum + SRB + Final Bonus
- The assured sum in our example is Rs. 1 lakh.
Calculation of total SRB accrued-
- I’ve assumed Rs. 50 per 1000 as my Sum Assured as SRB for this endowment plan.
- If for Rs. 2000 SA, the bonus is Rs. 50, for Rs. 2 lakh, it becomes Rs. 5000.
- According to our example, the total tenure is 20 years. So, total SRB = 5000*20 = Rs. 1,00,000.
Calculation of FAB
- I’ve assumed Rs. 500 per 1000 SA as a one-time FAB.
- So, for Rs. 1 lakh, FAB totalizes to Rs. 50,000.
- So, the expected total maturity is Rs. 1,00,000 + Rs. 1,00,000 + Rs. 50,000 = Rs. 2,50,000.
In the final step, go to the column showing cash flow. Click on the cell showing IRR and put up your data range—press enter. You receive your IRR on the scheme you purchased.
What Is Insurance?
Insurance is used as a fence against the risk of uncertain loss. A person providing insurance is called an insurer.
Let’s take, for instance, when you meet an unfortunate death. You’ve two children and a wife. It is this money that’s needed to meet ends in your absence. but if your insurance is very old you have two options left, pay up or surrender.
1. What is the appropriate time to surrender LIC Policy?
2. How can I compute the total sum assured?
This includes your regular mandatory expenses like-
a. Your child’s school/college fees
b. Electricity, gas, phone bills, etc. and multiplied by 12 to make it annual.
c. Any medical insurance, if any.
d. Other expenses like dining out, gym, etc.
2) Subtract your assets and add liabilities
Suppose you own a mortgage, and the total EMI is Rs. 20,000 for 10 years. You took a loan from a bank or borrowed it from your friend.
So, the total EMI = Rs. 20,000 * 12 *10 years = Rs. 24,00,000
If you’ve in stock money, it can come under a subtracted asset. It counts up to Rs. 9 lakh.
So, 24,00,000-9,00,000 = Rs. 15,00,000.
3) Add any essential expenditure-
It includes any marriage or serious health issues etc. expenditure.
So, Sum Assured = 1+2+3
3. What is the maximum sum assured you can get?
4. Who must consider acquiring a life insurance endowment plan?
Life insurance Endowment plans are a diligent way for both sided coin. It’s like you can always have an emergency kit of money in your hand. From small business people to doctors, engineers, everyone looks at this plan as their future safeguard. In short, endowment plans are generally for common men than aristocratic classes.
Most importantly, those who want to make life secure for their family in the future must buy it in their own absence or presence.
5. Under what circumstances should you buy endowment life insurance policies?
People with irregular incomes must go with single payor one-time pay. In short, endowment plans to work effectively if you’ve long term and regular earning.
In this hectic schedule, we forget to live. But at least we can secure the lives of our family with a small step now. To make it more clear, we discussed how to calculate a life insurance endowment plan. I hope it depths your knowledge in it!