Endowment Plans For Life Insurance With Stable Returns
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An endowment plan is a product that provides the benefit of insurance as well as savings. Any insurance policy that guarantees death benefit along with providing a maturity benefit can be termed an endowment plan. The policyholder receives a pay-out at maturity, but if he/she dies during the policy term, the nominee is paid the sum assured. An endowment plan can be unit-linked or non-linked.
Primarily endowment policies are of three types — unit-linked endowment plan, with profit endowment plan or participating and without profit or non-participating plans.
1. Unit-Linked Endowment Plans
When you opt for unit-linked endowment plans, the premium paid is invested in different funds of your choice thereby earning you market linked returns.
2. With Profit Endowment Plan or Participating Plans
Under a with-profit endowment plan, the insurance company declares bonuses. The sum assured is payable in case of death or maturity. Bonus is the additional component. The bonus is a part of the profit earned by the insurer.
3. Non, Without Profit Endowment Plans or Non-Participating Plans
These plans offer guaranteed benefits on death as well as maturity.
How Does It Work?
Endowment policies should be a part of every investment portfolio. Endowment plans ensure life insurance coverage, just like other insurance products, and also help you accumulate funds that are paid at maturity. If the insured passes away during the policy tenure, the nominee gets the sum assured. On the other hand, if the insured survives the policy term, he/she is paid a lump-sum amount at maturity. The maturity benefit can be utilised to meet life goals such as children’s marriage or retirement.
What Are Its Features And Benefits?
1. Dual benefits
Life insurance is taken to guard against unforeseen circumstances. An insurance plan ensures the financial stability of the family in case of an unfortunate incident. But along with the insurance cover, it also offers a savings component which helps in creating wealth for the future. An endowment policy essentially provides both death and maturity benefits.
2. Higher returns
An endowment policy is not the only life insurance plan that pays maturity benefits. Products like term plans with return of premium also pay benefit at maturity which is equal to the total premium paid by the customer under the policy. In case of an endowment plan, there is a return on the premium on account of the return from the funds in case of ULIP or Bonus in case of Participating plans or the guaranteed benefit in case of a Non-participating plan
3. Flexibility
Insurance plans may offer certain flexibilities like the premiums which can be paid on a monthly, quarterly, half-yearly or annual basis. Certain plans can have additional features like riders for accidental death, accidental total and partial disability and critical illness etc. Some plans also have premium waiver options for disability and critical illness.
4. Tax benefits
Endowment plans also provide tax benefits. The premiums paid for the policy are eligible for tax deduction under Section 80C of the Income Tax Act, 1961 (the Act). Additionally, the pay-out received from the policy is exempt from taxes under Section 10 (10D) of the Act. Tax benefits are subject to provisions of the Act, as amended from time to time.
5. Long-term savings
An endowment policy is a long-term product. Through the policy, you can save and build wealth systematically over the long term. It inculcates a habit of savings and depending on the type of the policy, the savings grow over a period of time.
Factors To Consider Before Buying One
It is important to understand every detail of an endowment policy before investing in it. Though it is a life insurance plan, it is used as a tool for long-term savings. One should take into consideration several factors before buying an endowment policy.
1. Plan early
Endowment policies are long-term commitments and it is critical to start early to get the maximum benefits. Endowment plans are designed to accumulate wealth over several years. Starting early boosts the final corpus as the power of compounding works over the long-term.
2. Flexibility
One of the best features of an insurance plan is the flexibility it offers. While buying a policy, it is necessary to evaluate the level of flexibility offered by different insurance companies. One should ascertain the premium payment plans terms before investing. Salaried employees can utilize regular premium payment options, while people with irregular income can avail single premium payment option.
3. Know the type of plan
A number of endowment plans are available in the market. Before buying a plan, it is extremely important to understand your needs, risk appetite and then opt for a policy. One should be aware of the type of plan he/she is signing for.
4. Riders
One can choose to enhance the insurance coverage of an endowment policy by adding riders if the feature is available under the plan. You can choose a critical illness rider or an accidental death rider. Choose a policy that offers a wide variety of riders so that you can customize it as per your requirements.
Conclusion
Along with being an efficient savings tool, an endowment plan also provides a life insurance cover. The benefits of investing in endowment plans are innumerable.
Also read: What Is the Best Way to Compare Endowment Plans Online?
