--- title: Endowment Policy in UAE - Scope Benefits & Limitations. description: An endowment policy is like a savings plan with life cover. It provides the insured life insurance along with the facility of saving for their future. image: https://www.financialplanningindubai.com/hubfs/bigstock--181647265.jpg --- [![Financial_Planning_in_Dubai_logo](https://www.financialplanningindubai.com/hs-fs/hubfs/Financial%20Planning%20in%20Dubai%20Logo_9090-2.png?width=90&height=90&name=Financial%20Planning%20in%20Dubai%20Logo_9090-2.png "Financial_Planning_in_Dubai_logo")](https://www.financialplanningindubai.com/?hsLang=en-gb) - [Home](https://financialplanningindubai.com/) - [Blog](https://www.financialplanningindubai.com/blog) - [Services](https://www.financialplanningindubai.com/services) - [Islamic Investments & Takaful Plans](https://www.financialplanningindubai.com/blog/salama-hyat-plus-takaful-plan) - [Medical Insurance](https://www.financialplanningindubai.com/blog/topic/medical-insurance) - [Free Resources](https://www.financialplanningindubai.com/free-finanical-tools) - Tools - Calculators - [S&P 500 Investment Calculator](https://financialplanningindubai.com/sp-500-investment-calculator/) - [Life Insurance Calculator](https://www.financialplanningindubai.com/life-insurance-calculator) - [SIP Calculator](https://financialplanningindubai.com/sip-calculator/) - [Lumpsum investment calculator](https://www.financialplanningindubai.com/lump-sum-investment-calculator) - [Inflation Calculator](https://www.financialplanningindubai.com/inflation-calculator-uae) - [Net-Worth Calculator](https://www.financialplanningindubai.com/blog/free-personal-balance-sheet-template-networth-statement) - [The Best Budget Planner for Expats](https://www.financialplanningindubai.com/expat-budget-planner) [Book A Discovery Call](https://www.financialplanningindubai.com/meetings/damodhar?hsLang=en-gb) # Endowment Policy in UAE - Scope Benefits & Limitations. ![Damodhar Mata](https://app.hubspot.com/settings/avatar/e63bc971ec29ebe6c012fd042c1a8215) [Damodhar Mata](https://www.financialplanningindubai.com/blog/author/money-mata-aka-damodhar-mata) 2 Dec 2017, 13:04:00 ###### [Guaranteed Investments,](https://www.financialplanningindubai.com/blog/topic/guaranteed-investments) [Insurance,](https://www.financialplanningindubai.com/blog/topic/insurance) [Investments](https://www.financialplanningindubai.com/blog/topic/investments) An Endowment policy is like a savings plan with life cover. It provides a [risk-free and guaranteed return on maturity](https://www.financialplanningindubai.com/blog/2017/03/15/regular-saving-plans-lic-international?hsLang=en-gb) as long as you make the payments agreed at the inception of the policy. It helps you save for your future so that you can get a lump sum on maturity or on death before maturity. ![Endowment policy - Benefits and Limitations](https://www.financialplanningindubai.com/hs-fs/hubfs/bigstock--181647265.jpg?width=750&height=497&name=bigstock--181647265.jpg "Endowment policy - Benefits and Limitations") In other words, an [endowment policy](https://www.financialplanningindubai.com/blog/day-24-endowment-plans-good-or-bad?hsLang=en-gb) is a combination of Term life insurance and an Investment. The life cover of an Endowment policy is known as Sum Assured. ## How does it work? After paying, the cost of insurance, administrative and distribution costs, the life insurance company invests the balance of the premiums to generate income. The surplus of the income over the expenditure of the insurance company is redistributed to all plan holders as a bonus. This bonus is usually declared as a specific proportion of the sum assured or life cover. #### Vested Bonus The bonus declared is not paid to the endowment policyholder immediately as in the case of dividends. It is added to the Sum assured each year and is payable on the Maturity of the plan or the death of the insured. The process of allocating the bonus to the policy of the insured is called vesting. The bonus so added to the sum assured at the end of every year is called Vested Bonus. #### No Compounding While the bonus is vested every year, it does not compound like a fixed deposit. Each year it accumulates as in case of simple interest. The following example shows the effect of a bonus on the sum assured on a 5-year endowment policy. | **Years** | **Sum Assured** | **Vested Bonus** | **Total** | | --- | --- | --- | --- | | Year 1 |  100,000.00 |  2,700.00 |  102,700.00 | | Year 2 |  100,000.00 |  2,800.00 |  105,500.00 | | Year 3 |  100,000.00 |  2,900.00 |  108,400.00 | | Year 4 |  100,000.00 |  2,900.00 |  111,300.00 | | Year 5 |  100,000.00 |  3,000.00 |  114,300.00 | |   |   |  14,300.00 |   | ### Endowment Policy Benefits - Guarantee of payment on death or maturity - It enables disciplined & goal-based savings - Provides Assured returns - Hassle-free Loan against policy can be availed ### Endowment Policy Limitations Like all insurance plans, the Endowment policies also have some limitations. #### 1. Higher Premiums in comparison to other policies The Premiums on endowment plans are usually higher than Term life or whole life insurance plans. This is an expensive approach to life insurance. ![endowment-policy](https://www.financialplanningindubai.com/hs-fs/hubfs/Imported_Blog_Media/Endowment-Policy1-1.png?width=750&height=483&name=Endowment-Policy1-1.png) ####  2. The surrender value usually is lower than the premium paid  In the event of early surrender, the surrender value of the plan is generally lower than the premiums paid into the plan. Hence it is never a good idea to surrender the plan earlier than maturity. However, most endowment plans have a policy loan facility to address short-term liquidity needs. #### 3. Returns can be lower than Market Linked Investments While an endowment plan offers a capital guarantee and stable returns in the form of a Bonus, the yield can be comparatively lower than market-linked investments. Such plans are more suitable for investors who do not want to take any risks and are happy with low returns. However, they may not be ideal for a youngster who can take more risks and are looking to get high returns on their investments. ### Summary  As discussed above, an Endowment policy is a combination of insurance and a savings plan. The assurance of being able to receive more than the capital invested is the most important benefit of Endowment plans. They provide a sense of surety.  It is ideal for long-term goals which are a must to achieve like; - Retirement  - Children's Higher Education - Daughter's Marriage  ### Free Consultation Arrange a free consultation with me to discuss your investment & protection goals and choose the most suitable Endowment policies/investment plans. [Book a Discovery Call](https://www.financialplanningindubai.com/meetings/damodhar?hsLang=en-gb) ![Damodhar Mata](https://app.hubspot.com/settings/avatar/e63bc971ec29ebe6c012fd042c1a8215) [Damodhar Mata](https://www.financialplanningindubai.com/blog/author/money-mata-aka-damodhar-mata) Author, Blogger & Independent Financial Advisor. My goal is to give you actionable tools for creating passive income and building wealth. More than 10,000 expats have already used my ideas to jumpstart their journey towards financial independence. Connect with me to start yours... Share this article on [mailto:?subject=Check%20out%20Endowment%20Policy%20in%20UAE%20-%20Scope%20Benefits%20&%20Limitations.%20&body=Check%20out%20https://www.financialplanningindubai.com/blog/2016/10/17/endowment-policy](mailto:?subject=Check%20out%20Endowment%20Policy%20in%20UAE%20-%20Scope%20Benefits%20&%20Limitations.%20&body=Check%20out%20https://www.financialplanningindubai.com/blog/2016/10/17/endowment-policy) ##### Read more - [The Real C-Suite – The Only Title That Matters 🏆](https://www.financialplanningindubai.com/blog/breadwinner?hsLang=en-gb) - [The Wealth Secret 99% of Investors Ignore – Will You?](https://www.financialplanningindubai.com/blog/the-iceberg-of-investing?hsLang=en-gb) - [From Risk to Reward? 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[Read More](https://www.financialplanningindubai.com/blog/how-i-convinced-a-hesitant-working-couple-to-buy-life-insurance?hsLang=en-gb) [![Six crucial differences between Islamic & traditional life insurance.](https://www.financialplanningindubai.com/hs-fs/hubfs/Six%20crucial%20differences%20between%20Islamic%20%26%20traditional%20life%20insurance.%20(350%20%C3%97%20250%20px)-2.png?width=300&name=Six%20crucial%20differences%20between%20Islamic%20&%20traditional%20life%20insurance.%20(350%20%C3%97%20250%20px)-2.png)](https://www.financialplanningindubai.com/blog/differences-between-islamic-traditional-life-insurance?hsLang=en-gb) ##### [Six crucial differences between Islamic & traditional life insurance.](https://www.financialplanningindubai.com/blog/differences-between-islamic-traditional-life-insurance?hsLang=en-gb) For Muslims, Islamic Life Insurance or Takaful Plans are an excellent alternative to traditional... 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