Benefits Of Investing In An Endowment Plan
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An endowment plan is akin to a life insurance policy that blends investment and insurance. This plan offers the best of both worlds – on maturity, the policyholder gets the sum assured, and in the unfortunate event of the policyholder’s demise, the family receives a death benefit. An endowment plan pays a lump sum either after a specified term or on the policyholder’s death, as the case may be. In this way, it offers a living benefit to the policyholder via periodic payouts while also providing insurance coverage.
Chief Advantages Of Endowment Plans
- Dual benefit: Endowment plans offer the dual benefit of long-term investment and insurance. Apart from paying the sum assured (or accumulated amount minus outstanding premiums, whichever is higher) to the beneficiary in case of the policyholder’s demise, endowment plans also pay a lump sum maturity amount (adjusted after considering company performance and premium defaults) if the policyholder survives the policy tenure. This is a key advantage of endowment policies.
- Safe: Even though the returns on endowment plans may be lower, they are risk-free in terms of the sum assured.
- Disciplined savings: Policyholders need to set aside a pre-determined amount towards the premium payment at a stipulated time interval, thus, encouraging a disciplined approach to saving.
- Assured bonus: Endowment plans declare an annual bonus, typically paid out as a specific percentage of the sum assured. In case of the policyholder’s survival, additional bonuses accrued during the policy term are paid in addition to the sum assured. In case of death during the policy term, the death benefit is paid to the nominee, including the full sum assured along with the total accumulated bonus.
- Compounding returns: A key advantage of endowment plans is that they fetch returns on a compounding basis during the policy term.
- Loan facility: Policyholders can take a loan against an endowment policy as and when needed, and this is usually without the need to secure the loan against collateral.
- Double tax benefits: One major advantage of endowment plans is that they offer tax benefits as per the Income Tax Act, under Section 80C on the annual premium, and under Section 10D on the death benefit.
- High liquidity: Endowment policies are liquid in nature.
- Premium flexibility: Another important advantage of endowment plans is that you can pay your premium over a short period and enjoy the policy benefits over a long term. In case premium payments stop after certain minimum years' premiums have been paid, a free paid-up policy for a lower sum assured can be secured - subject to certain conditions.
- Additional benefits/riders: Insurance companies offer additional benefits to policyholders, such as marriage/education endowment plans and double endowment plans. An endowment plan also lets policyholders add additional riders for major surgical assistance, critical illnesses etc., by paying a marginal premium.
Conclusion
If you want a policy that offers more than just life cover, an Endowment Plan is your best bet. The triple benefits of long-term wealth creation, insurance coverage, and regular goal-based savings make these plans the right choice for people belonging to any age group, irrespective of their saving capabilities. Even though endowment plans may offer lower returns, they are much safer and guarantee that one’s investment and insurance needs are well taken care of under a single plan.
An endowment plan is a saviour during a financial crisis - an excellent channel to assure financial support and security to one’s family at present and in the future.
Also read: Things To Keep In Mind When You Compare Endowment Plans
