An Endowment Plan Fulfils Dual Benefits; Know How?

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Benefits of an Endowment Plan

All of us have had heard the word “endowment” at least once, but most might not have learned much or possess good knowledge about the same. In the present scenario, the insurance companies offer various investment plans to its policyholders, the endowment plan being one of a kind.

An endowment plan is alike insurance policy but offers a mix of insurance and investment. Simply put, this plan provides dual benefits; the policyholder gets the sum assured on maturity and the nominee of the policyholder receives the death benefit in the event of the demise of the policyholder.

The policyholder or nominee receives a lump sum after a stipulated time period in the event of policyholder’s death. Since this plan is an insurance product, the policyholder is required to make periodical premium payments during the tenure of the policy, thus entitled to receive the sum assured at the end of the term along with bonus and other accrued benefits in accordance with the policy conditions. This plan thus offers contemporary advantage through recurring payments while providing insurance benefit to the insured at the same time. Endowment plans, therefore, boost orderly installed investments, life and accidental insurance coverage, and predetermined lump sum disbursement on the maturity of the said policy.    

Hoping that the above shared introductory information has broadened the idea of the readers about the endowment policy, let’s dive into its varieties.

Two broadly categorized customary plans are offered as endowment policies- with profit and without profit; to suit the investor’s financial goals such as retirement pension, investment security, life protection, children’s education/marriage and etc.

Some types of Endowment policies are:

  • Full endowment plan

  • Non-profit endowment plan

  • Endowment assurance plan

  • Low-cost endowment plan

  • Limited payment endowment plan

  • Double endowment plan

  • Joint life endowment plan

  • Unit linked endowment plan

Major benefits of an Endowment Plan are:

  • Dual benefit :- As stated above, the endowment plans offer a long-term dual benefit of insurance and investment. In case of the policyholder’s unfortunate demise, the beneficiary of the policy becomes entitled to receive the sum assured and if the policyholder survives the policy term, a lump sum amount on maturity is payable to the policyholder.

  • Compulsory Savings :- Insurance or investment policy, either one requires prioritized savings. The policyholder has to earmark the amount of premium from his/her savings, thus, cultivating a thrifty habit.

  • Safety :- Endowment plans offer safer and risk-less investment option, even though, the return from such plans are not high.

  • Compounding benefit :- Endowment policies provide an advantage in terms of compounding return on the amount of sum assured.

  • Flexible :- An advantage that can be achieved by an endowment policyholder, flexibility to pay premiums for short period and enjoy insurance coverage for a long term. A policyholder can avail secured coverage for a lower sum assured as per policy conditions, in case minimum installments towards premium have been paid.

  • Loan facility :- If a need arises, policyholders can raise a loan against endowment policy with much ease. Such loan is generally unsecured i.e. there is no need to keep any collateral security against such credit.

  • Bonus :- Bonus is declared on an annual basis under the endowment plans, which are customarily paid out at a specified percentage of the sum assured. The policyholder qualifies to receive additional bonuses accrued during policy tenure besides the sum assured in case he/she survives the whole period. In the event of a death of the policyholder during the term of the policy, the full sum assured along with accrued bonuses is paid to the nominee/beneficiary of the policy.

  • Tax benefits :- The premiums paid during the financial year under the endowment policies are allowed as a deduction from taxable income of the policyholder under section 80C of the  Income Tax Act, 1961 and the amount paid as a death benefit is deductible under section 10D. Hence, endowment plan ensured double tax benefit for the policyholder.

  • Supplementary benefits :- Endowment plans also carry additional benefits in certain cases such as surgical assistance, censorious indisposition, education endowment plans, marriage endowment plans and etc. But such offerings depend upon the discretion of the insurance company.    

It is thus proved that endowment policies are among few flexible and reliable policies offered by the insurance companies nowadays.

Endowment plans are most suitable for investors having a regular income stream and seeking an investment plan that offers the flexibility of lump sum redemption after a specified period such as for professionals, salaried individuals, businessmen or entrepreneurs to overcome their financial crisis. Endowment policies are a better option for every kind of investor, involving both risk lovers and risk haters. This discrimination is done on the basis of the risk appetite of the investor, i.e. whether the investor wants to invest his money into risk-free policies or invest in risky portfolios for lesser returns.

Benefits of an Endowment Plan

Caveat

Every person wishes to invest his capital with the sole motive of appreciation with least efforts. Although, endowment plans are in the form of insurance coverage which involves the least risk, yet an investor needs to consider certain important factors while investing in an endowment policy.

Financial objective; proposer‘s age; income; risk-tolerance; premium rates; rate of return; rate of bonus; payment track record; claim settlement record; customer service record and etc. These are some factors which should be checked by every prospective investor of the endowment policy. By putting little extra attention, one can prudently secure his money and add a surplus to his corpus.

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