Learn How Does an Endowment Plan Work?
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Endowment Plans can be defined as the life insurance plans that give a lump sum return after the end of the policy (or death). Unlike conventional life insurance plans that give the returns in the form of small pension units on a regular basis, the endowment plans give the entire promised sum in a single transaction. How an endowment plan works, is decided by the company with minor modifications which make the policy a little special for the particular company. However, the basic working principle for an endowment plan is common for all.
Working of Endowment Plans
An endowment policy can usually function in one of these four ways.
- Unrestricted: The receiver of the money is free to spend the lump sum received in any way he/she pleases.
- Restricted: The receiver of the money can only spend the lump sum received in a particular way as suggested by the donor.
- Quasi: The way in which the receiver spends money is pre-decided by both the parties, that is the receiver and the donor before the start of the term.
- Term: The receiver of the money receives the money only after the end of the maturity period. However, after the end of this period, he/she may spend the money as he/she likes.
Endowment Insurance Plans
Investing in an endowment plan is much like investing in dedicated life insurance plans. However, it has some benefits over the traditional counterpart.
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No Medical Exam
While purchasing a normal life insurance plan, you need to attend a medical exam that checks your physical health. If you are in your prime (the early 30s), there is a better chance that you do not have any physical illness. Therefore, the premium that you need to pay is significantly lower compared to the one that you pay when you buy the policy in your 60s.
Endowment plans do not require you to attend any such medical exam. Therefore, you have to pay the same premium as an older or younger person needs to pay.
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Unrestricted Mode for Spending
You get to spend the money that you receive in any way that pleases you. Either you can buy your dream retirement house, go on a vacation or sponsor your kid’s college expenses, the choice is yours. Also, because you get a lump sum at the end of maturity, you are in a better state to spend lavishly on a better home, vacation or college, as you like.
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Saving for College
Most people look at endowment insurance as a mandatory method of saving for college. You can time the end of maturity period exactly when your kid completes high school so that the lump sum amount you receive helps you to pay the college tuition fee.
All these benefits come at a small price of paying higher premiums compared to the conventional life insurance plans. Going for an endowment life insurance is almost always more beneficial in the long term, if you are ready to invest an extra small amount on every premium.
Conclusion
There are several endowment policies in the market and choosing the right one can be difficult. You should choose such a plan that is thoughtfully designed to offer maximum benefits to investors and offers tax benefits too. A plan with higher maximum age entry, as well as assured lump sum as a death benefit is a perfect choice.
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