An endowment policy is essentially a life insurance policy which, apart from covering the life of the insured, helps the policyholder save regularly over a specific period of time so that he/she is able to get a lump sum amount on the policy maturity in case he/she survives the policy term. This maturity amount can be used to meet various financial needs such as funding one's retirement, children's education and/or marriage or buying a house.

A life insurance endowment policy pays the full sum assured to the beneficiaries if the insured dies during the policy term or to the policy holder on maturity of the policy if he/she survives the term.

Thus, "any life insurance plan with a saving component and lump sum maturity benefit can be termed as an endowment plan. That can be a unit linked insurance plan (ULIP) or a non-ULIP. However, in common parlance, only a non-ULIP saving-linked life insurance plan is referred to as an endowment plan," says Dr P Nandagopal, founder & chief mentor of financial services start-up OpenWorld Money.Endowment plans, thus, fulfill the dual need for a life cover and savings under a single plan. They are one of the traditional forms of life insurance plans available in the Indian market.

Endowment policies are basically of two types - with profit and without profit. Within these two classes there are many variations of endowment plans structured to meet the need of child education, whole life protection and pension, among others.