Things to Consider Before Buying An Endowment Policy
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When it comes to endowment plans, it is framed to take care of your financial security in your presence as well as in your absence. It holds the feature of insurance and investment due to which its premium is generally higher than a term insurance policy. Fulfilling the protection and saving needs with maturity benefits on policyholder’s survival and death benefit on the demise of the policyholder, makes this plan distinctly popular. However, you should keep a few things in mind before buying an endowment plan:
Things to Consider Before Buying An Endowment Policy
If you want to pick an ideal endowment plan, you should consider the below given points while buying it:
1. Need of Life Insurance Cover
The first and foremost point that you should consider while purchasing an endowment plan is to reckon the cover for life insurance you need. Ideally, you must opt for at least a cover of 20 times your annual income. For instance, if your current earning is Rs. 10 lakh every year, then you should pick a policy offering a cover of Rs. 2 crores. However, the element of life insurance cover is based on various factors like financial goals, liabilities, dependents, etc. Hence, you can also use a premium calculator tool to determine the amount of insurance cover.
2. Premium To Be Paid
Due to its coverage facility for investment and insurance, endowment plans are available at a higher premium than pure term plans. The insurers invest one part of their premium in secured avenues for wealth creation. Therefore, it is crucial to find out the premium before purchasing an endowment policy. Since its premium is relatively higher and could hit your current income and expenditure, hence, it is recommended to select a premium after comparing different plans.
3. Facility of Periodic Payouts
The concept of periodic payouts at regular intervals of policy term provides assurance that you can fulfil your short-term financial goals like making a car’s down payment, going on a vacation, undertaking a home renovation, and so on. For example, if an insurance company gives guaranteed payouts at predefined and regular intervals during the policy term that is 25% of the basic sum assured. Selecting a policy term of 16 years can get you payouts every four years of the endowment plan if you survive till the policy term. However, in case of your death, your beneficiary will get the complete sum assured amount along with the accrued bonuses.
4. Claims Settlement Ratio
The whole purpose of a life insurance plan gets derailed, if the claim gets rejected. Therefore, it is quite a crucial element to check the Claim Settlement Ratio (CSR) of your insurance company before purchasing an endowment plan. The CSR denotes the ratio of the total number of claims received by an insurance company to the number of claims settled. A company with a low CSR may possibly reject your claim readily, which can lead you into trouble.
Conclusion
Endowment policies are tailored to offer you protection and savings. The plan helps in building a corpus which makes it one of the most ideal financial instruments to secure your loved ones and dependents from different sorts of uncertainties of life and achieve their financial goals. However, you should purchase the endowment plans taking the aforementioned points into consideration. Buying the plan keeping relevant factors in will help you find the plan that suits your needs in the best manner.
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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.
