Endowment and Whole Life Plans for NISM X-B

Understand Traditional Endowment and Whole Life Plans

Key formulas to remember

Endowment benefit on death

Death benefit = Sum assured + vested bonuses (participating)

Non-participating plans pay the guaranteed sum assured only. Always check whether bonuses are mentioned.

Endowment benefit on maturity

Maturity benefit = Sum assured + vested bonuses + terminal bonus (if any)

Applies to participating plans. Non-participating plans pay the guaranteed amount.

Reversionary bonus

Bonus = Bonus rate per ₹1,000 sum assured × (Sum assured ÷ ₹1,000) × years

Rates are quoted per ₹1,000 of sum assured. Only works if the rate is constant across years.

Money-back maturity payment

Final payment = Sum assured − survival benefits paid + bonuses (when the plan is structured so that survival benefits are paid out of the sum assured)

This is an assumed structure, not a general rule. Under it, as per policy terms, the death benefit is the full sum assured plus bonuses. The maturity payment is the remaining sum assured (after survival benefits) plus bonuses, and bonuses accrue on the full sum assured. In some products, survival benefits are paid in addition to the full sum assured at maturity, so the maturity payment is not reduced. Always follow the policy terms stated in the question.

Plan comparison

Endowment: fixed term, pays on death or survival. Whole life: lifetime cover, pays on death.

Key distinction students are tested on.

How to solve Traditional Endowment and Whole Life Plans questions

1. 1Identify the plan type from the wording: fixed term with survival benefit means endowment, lifetime cover means whole life, periodic payouts means money-back.
2. 2Check whether the policy is participating or non-participating. Bonuses exist only in participating policies.
3. 3Identify the event: death during term, survival to maturity or early surrender.
4. 4List the components payable for that event: sum assured, vested bonuses, terminal bonus, survival benefits already paid.
5. 5For calculations, convert the bonus rate per ₹1,000 into a rupee amount, then multiply by years.
6. 6For money-back, subtract survival benefits only where the question says the final payment is a balance, not on death.
7. 7Eliminate options that promise guaranteed bonuses, guaranteed returns on surrender or equal premiums to term plans.

Quickest way: Plan, Participation, Event

Common mistakes in Traditional Endowment and Whole Life Plans

• Treating bonuses as guaranteed from the day the policy starts.

  Illustrations show projected bonuses and they look like promises.

  Fix: Only declared (vested) reversionary bonuses are assured. Future bonuses depend on the insurer's surplus.

• Saying non-participating policies pay bonuses.

  Students mix up non-participating with unit-linked or with low-risk.

  Fix: Non-participating means no share in surplus. Benefits are fixed at the start.

• Confusing reversionary and terminal bonus.

  Both are paid at death or maturity, so they sound alike.

  Fix: Reversionary is declared every year and vests. Terminal (final) is a one-time bonus typically paid at exit (maturity or death, and in some policies on surrender), subject to policy terms.

• Deducting money-back survival payments from the death benefit.

  Students assume benefits already paid reduce the cover.

  Fix: In the money-back structure assumed here, as per policy terms, death during the term pays the full sum assured plus bonuses. Only the maturity payment is reduced by survival benefits already paid. Read the question's stated terms.

• Calling a whole life plan a savings plan with a maturity payout.

  It is grouped with endowment as a traditional plan.

  Fix: Whole life pays on death. Its use is legacy planning, not near-term liquidity.

• Assuming surrender value equals premiums paid.

  It feels natural to expect your money back.

  Fix: Surrender value is usually lower, especially in early years, and may be nil before the minimum premium period.

Worked examples