An endowment policy is a specific life insurance policy type that combines both insurance and savings benefits for policyholders. They provide opportunities for building savings in the future while getting life insurance coverage simultaneously. However, are these life insurance policies for everyone? Here’s taking a closer look.
Understanding Endowment Plans
An endowment policy gives policyholders insurance coverage and savings/investment options. The premium you pay for these plans helps accumulate a corpus, which is paid out as a maturity benefit upon the conclusion of the policy tenure. However, in case of the policyholder’s unfortunate death, a death benefit plus other bonuses (if applicable) on the principal sum assured will be paid to the nominee as per the terms and conditions of the policy.
The three main categories of endowment policies are non-participating, participating, and unit-linked endowment plans.
.Endowment Plan without Profit (Non-Participating Plans) – These plans provide maturity and death payments that are guaranteed.
.Endowment Plan with Profit (Participating Plans) – A with-profit endowment plan allows for bonus declarations from the insurance firm. If you pass away or reach maturity, you will receive the sum assured along with any bonuses earned during the policy tenure. The bonuses are a portion of the insurer’s earnings.
.Unit-Linked Endowment Plans – By choosing unit-linked endowment plans, you can earn market-linked returns on the premium you pay by investing it in a variety of funds of your choosing.
What purposes can they serve?
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An endowment policy can serve multiple purposes, including the following:
.Dual Advantages– You get not only life insurance coverage and a death benefit for your nominees in your absence but also the opportunity to build up long-term savings in the form of a corpus. Endowment policies ensure maturity and death benefits, which is one of their most significant advantages.
.Good Returns– In the case of non-participating endowment plans, there are guaranteed maturity benefit payouts. On the other hand, participating plans pay a share of the company’s profits to the policyholders in the form of bonuses, while non-participating plans do not have this feature. Although, endowment policies are not the only options available for maturity benefit payouts. Market-linked plans like ULIPs also provide these benefits.
.Flexible Nature– You can flexibly pay premiums on monthly, quarterly, annual, or half-yearly systems. Some plans may have features like special riders for partial/total disability, accidental death and critical illnesses. Some may come with premium waiver riders for disabilities.
.Tax Advantages – Endowment plans come with tax advantages, with the premiums being tax deductible under Section 80C of the Income Tax Act, 1961. The policy payouts are also exempted under Section 10 (10D) of the Act.
.Future Savings– With endowment policies, you can build savings for the long term. This will inculcate financial discipline and accumulate a corpus to meet future objectives.
Who is eligible for an Endowment Plan?
. While some plans do not have age limits, some have 18 years as the minimum entry age. The maximum age is 60 years, although this may vary across policies.
Are endowment plans ideal for you?
Now comes the main question- are you the ideal candidate for an endowment plan? You are a suitable candidate if you identify with the following:
.Investors who are risk-averse – You may choose endowment plans if you are averse to taking higher risks and want to accumulate a corpus for the future.
.Those looking for future security- These plans help you save money for the future in order to meet various goals and objectives while enjoying life insurance coverage at the same time.
.You wish to safeguard your family’s financial future in case of your unfortunate demise.
.You want to save a guaranteed sum for your child’s higher education and other future costs.
.You want to save money for your retirement.
If you identify with one or most of the above parameters, you are an ideal candidate for an endowment policy.
Wrapping Up
Endowment plans can be excellent options for conservative investors to build wealth for retirement, meet education and other requirements of children, or save up for meeting future life goals while keeping life insurance coverage intact at the same time. The best part is that these plans qualify for tax benefits. An endowment plan can be an excellent choice for your portfolio as a result.
