Life has many unpredictable things it can throw at you and it becomes an obligation we live by to ensure the financial security of dear ones. Apart from providing for the financial protection, endowment plans help you save for the future in the course of protecting you. These plans guarantee insurance coverage and bonuses that are built over the term of the insurance policy. In this blog, we will explore what endowment plans are, the characteristics and advantages of those plans, and important criteria to focus on in choosing an endowment plan. Endowment refers to any form of economic investment, particularly a form of life insurance that contains features of insurance and savings. They pay out a cash value at the end of the policy term and pay out in the event of the death of the policyholder. Often the amount of money insured along with the premiums saved for the policy term becomes the basis of the compensation. The making of savings in an endowment plan divides a savings target into installments. Endowment plans are unique financial products that provide an individual with both life insurance and saving features. If you get to know its aspects, uses, and other crucial aspects that need to be considered, you shall choose the right endowment plan to ensure your family gets the required security and saving. As always, it is important to look at several plans offered and consider all the options before they make their decision. Often it is wise to consult a financial sector expert so that the endowment plan matches your taste and requirements.What are endowment plans?
The endowment plan provides several key features, as mentioned below:
1. Maturity Benefit: When the participants of the endowment plans attain the required age or when the policy matures, they receive the amount in a lump sum that may be used in activities such as retirement, for the education of the children or for the purchase of other financial products.
2. Death Benefit: When a policyholder dies, the nominee receives the guaranteed sum assured or the cash value of the policy, or the equivalent, whichever is greater.
3. Bonuses: The insurers make the policyholders receive common bonuses to the policy cash value at a stipulated frequency. These bonuses are announced at the completion of the end of every financial year and the policyholder can receive them upon maturity of the policy or upon the policyholder’s death.
4. Flexibility: Policyholders can choose the kind of endowment plan they want through the process of choosing and rejecting specific options. The customers can select the mode of premium payments, both in terms of time (yearly, half-yearly, or monthly), policy term, the sum assured, and the added benefits called the riders, depending on their abilities and dreams.
5. Savings Component: The amount of money that is paid as premiums of the endowment plan, in addition to insurance premia, forms part of a savings pot. The money accumulated in this fund is entitled to declare bonuses. This is the major difference between endowment plans and term insurance.
Benefits of Endowment Plans
1. Financial Security: Endowment plans offer insurance benefits for the family in case of any adversity that results in one's demise.
2. Savings and Investment: To avail yourself of endowment plans with regular inexpensive premiums, you can save and create a corpus for use at specified future times, such as retirement, for the education of children, or for use in beginning a business.
3. Bonuses: The bonuses declared by insurance companies put extra value on your endowment plan, improving your savings.
4. Tax Benefits: The premium paid towards the endowment plan is eligible as a deduction under section 80C of the Income Tax Act and the maturity benefits of the endowment plan along with bonuses paid are also duty-free under section 10(10D).
5. Liquidity: A few endowment plans allow the policyholder to make a partial withdrawal during the term of the policy so that the policyholder can use the money when he is in urgent need of cash.
Things to Check When Selecting an Endowment Plan
1. Policy Term: Choose a policy term within your ability to make regular premium payments for the particular policy. If you have short-term goals, where you expect you will need money only very briefly, main strategies could be good, while secondary strategies are more suited for long-term goals, such as retirement or other long-term savings objectives.
2. Premium Payment Frequency: Settle for a payment period that complements your budget possibility and ease.
3. Sum Assured: Fixed the sum assured depending on your liabilities as well as your responsibilities.
4. Bonus Rate: Determine and analyze the bonus rate differences in various endowment plan offers and go for a plan that has a better and steady bonus rate.
5. Riders: You can opt for options such as accident benefits, critical illness coverage, or waiver of premium and take the coverage of the endowment plan up a notch.
6. Claim Settlement Ratio: Understand the recommended claim settlement ratio of the insurance company because it shows their capacity to close the claims.
Conclusion