Endowment Plans: Insurance Plus Savings

As part of an endowment plan, the policyholder gets his/her sum assured on a fixed date in future as per the policy terms and conditions. However, in case of the sudden death of the policyholder, the insurance company will pay the sum assured (plus the bonus, if any) to the nominee of the policy. An endowment plan is also useful to secure yourself or your family post-retirement or to meet various financial needs including children's education and/or marriage or purchasing a house.

Why Endowment Plans? 

The decision to buy an endowment plan must be well thought through after considering its benefits, returns on investment, etc. and comparing them against those of similar investments.

For a healthy individual in need of life insurance cover and investment that helps in saving on tax in addition to giving huge returns, he or she may choose to opt for a combination of financial products or opt for a single endowment plan which offers the same.

An endowment policy is much less risky than a mutual fund investment, and also has ULIP options which invest in various equity and debt schemes. In addition to being a tax-saving investment with guaranteed returns at the end of the term, it also provides comprehensive life insurance cover – which is a win-win situation for the investor (and his dependents).
Investors often argue against endowment plans because the returns on investment are not as high as those offered by a mutual fund, equity and debt-related investments of similar amounts for similar tenures. Purchasing two separate financial products – one for a life insurance policy and one for a product directed to give returns on investment will pay off better with a higher percentage of returns. 

It must be noted that while there are better options for returns on investments, endowment policies are first and foremost insurance policies. They just have the added benefit of giving returns on the premium invested – upon plan maturity.

Benefits Of Endowment Plans

Some of the main benefits of endowment plans include: 

1. Provides insurance cover during the policy term.
2. Investors can get a sizeable lump sum amount at the end of the policy term i.e. once the policy has matured.
3. An endowment policy works to serve a dual purpose. It acts as an insurance policy and also serves as a long-term investment offering decent returns.
4. Endowment policies usually come with tax benefits.
5. From an investment perspective, endowment policies are relatively safer as compared to other types of investments and offer returns which are close to those offered by mutual funds.
6. Endowment policies enable long-term savings.
7. Under endowment policies, investors can be assured of receiving a considerable amount upon maturity.
8. Most will extend insurance coverage and the promise of benefits even after the maturity date, in some cases up to a time when the life insured attains the age of 100.
9. Policyholders have the options of opting for additional riders which provide cover for specific illnesses, critical illnesses, disabilities, etc.

Important Points to Note While Buying Endowment Plans

1. Advance Planning

Investments must always be well planned and in advance, as this allows for your investment to grow in the long horizon. This, in turn, will help the insured to build a corpus and facilitate disciplined saving.

2. Plan with Riders

There are many insurance companies which offer riders as an inbuilt feature and one must never miss out on it. Additional benefits would include benefits such as education endowment, double endowment policy or a marriage endowment policy.

3. Flexibility Option

Endowment plans provide flexible options. In case an individual is salaried, she/he can choose a regular endowment policy whereas an individual with irregular income may opt for a single payment option or limited premium payment option.

4. Guaranteed and Non-Guaranteed returns

Apart from offering low-risk insurance and dual benefit of death cover and saving feature, many of these policies also offer a combination of guaranteed and non-guaranteed. The guaranteed returns such as guaranteed additions remain fixed and are payable on death or maturity (as applicable). The non-guaranteed returns include bonuses that are variable in nature and it depends on the investment performance.

5. Bonuses

Bonuses are declared by the insurance company depending on how the company has performed. When the insurer has made profits from its investments, he distributes a part to it to policyholders at the end of each financial year. Besides, the profit of the insurance company depends on the valuation of its assets and liabilities.

Conclusion

Endowment plans cover the life insured for a specified period. It allows the investor the option to remain insured based on his or her requirements. These are like insurance policies but come with the combined benefit of insurance cover as well as savings. This is the primary reason why it attracts many investors.

Also Read:  Some Noteworthy Advantages Of Endowment Plans

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