Stuck With An Endowment Policy: What Should You Do?

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Like many, have you bowed to the pressures of the impending deadline on tax-saving investments and invested in an endowment policy? If you are wondering what your options are, here we give you a few suggestions. However, it is important to understand what an endowment policy is, first.

An endowment policy is similar to a traditional insurance plan. However, in an endowment plan at the end of the maturity period a lump sum amount of payment is given to the insurance holder, provided that the person survives the period of the insurance. However, there can be a difference in the clauses of the different companies and some might make the payout owing to major accidents or critical illnesses or other plausible reasons.


Although getting a significant amount of money at the end of the maturity period seems to be an added advantage, in reality, the return that you get is extremely average. For the long term, the premiums will not fetch good returns as other investments would have. If you investing in an endowment policy owing to the tax saving benefits and the attractions of an insurance and investment package bundled into one, you might regret it later on. Therefore, you must consider what are the cons of an endowment policy.



If there is considerable time for your policy to mature and the premiums are not too steep, you can consider surrendering it after having considered what are the cons of an endowment policy.  However, you must think before you take any step, as the policy will be terminated once you surrender it. When you stop making payments towards the premiums before the policy ends, you will receive a surrender value. The amount you receive upon surrender depends on the number of years of the policy along with the premium and bonus meted out.

If your policy has started a while back, you will get back approximately 30% of the premium paid. However, if your premium has been paid for longer, you will get approximately 75% of the premium paid. The amount you receive is subjective to the insurance provider as well and the amount usually differs for various companies. Another important factor to remember here is that if you had claimed tax deductions and surrender your policy within three years of purchase after having considered what are the cons of an endowment policy, it will be taxable.


Surrendering your policy is wise if the surrender amount received can be used for better investment purposes, which give better returns than the endowment policy would have. This is after you have considered what are the cons of an endowment policy.

Should you Convert it to a Paid Up Plan?

This option will give you the benefit of keeping the policy. If you are a conservative investor mindful of what are the cons of an endowment policy, a paid up option is good, as it helps cut the outflow in premiums and keeps the policy going, against surrendering the policy and terminating it. Also, the policy is converted to a paid up plan when premiums are not paid for a two-year period. Although, for paid-up plans the benefits are lessened as the value diminishes, nonetheless it is not a complete loss. So if an insurance policy has been mis-sold to you, this is a good option to resort to.

If these options do not seem feasible to you, you can hold on to your policy till it matures. Although it will not give you great returns, if the maturity period is closer, there is little point in surrendering and losing out. Hence it is always advisable that you carefully consider any policy before investing in it. Speak to a financial advisor if you have a greater risk appetite and are willing to invest in other areas, which will give you tax saving investment options.