What Is An Endowment Policy And When Should Purchase It?

Endowment plans are life insurance plans that are designed to save money and provide you with guaranteed benefits. These plans are available for a longer period of time ranging from 10 to 30 years.

If you want to achieve a long-term financial goal, an Endowment plan is the best option. It will cover three areas: financial health, protection, and achievement of financial goals. Endowment plans may provide lower returns; however, the investment-related risk is quite low.

Endowment plans are usually available with two clauses, namely

• With Profit – On maturity, in addition to the sum assured, 'Profit Endowment plans' pay various other additional benefits in the form of Terminal and Reversionary bonuses.
• Without Profit – In 'Without Profit Endowment Plans,' no additional benefits are provided, and the plan is similar to that of a Traditional Life Insurance plan.

What Is An Endowment Policy And When Should Purchase It?

Below are a few reasons why one must consider investing in an Endowment plan:

1. Death And Maturity Benefits

An endowment plan is a one-of-a-kind investment option because it provides benefits as a maturity benefit if you survive the policy's tenure. Furthermore, if you die during the policy period, your nominee will receive the sum assured as well as other bonuses as a death benefit. As a result, endowment plans offer both death and maturity benefits, depending on the circumstances.

2. Coverage Adaptability

You can get flexible coverage with an Endowment plan. You have the option to purchase additional benefits such as rider benefits such as accidental death and disability, critical illnesses, and so on. By incorporating these riders into your policy, the scope of your Endowment policy would be greatly expanded. However, it would raise the policy's premium to a certain extent.

3. Payment Terms For Premiums That Are Flexible

Endowment Plan insurance providers typically offer flexible payment terms for their premiums. You can pay your policy premiums at any time that is convenient for you. This payment frequency can be monthly, quarterly, or even a one-time payment of the lump sum amount.

4. Added Value

Because the Endowment plans have the option of receiving additional bonuses, the actual maturity benefit would be greater than that of any other traditional life insurance policy without the bonus. The benefits are greater because, in addition to the sum assured, several other payable amounts can be obtained.

5. Tax Advantages

Endowment policies include tax advantages because the premium paid is deductible under Section 80C of the Income Tax Act of 1961. The maturity benefits obtained from Endowment plans are also tax-exempt under the provisions of section 10(10D) of the Income Tax Act of 1961, provided the sum assured is at least ten times the annualized premium.

Furthermore, even though the Endowment policies provide high returns along with bonuses and other additions, there is no inflation adjustment in the returns.

Conclusion

Because endowment plans are purchased for a long period of time, there is a possibility that the ultimate return generated after the policy term will not have the real value due to inflation.

Endowment policies, in addition to these essential features, provide the option to convert the policy to a paid-up policy. You can also borrow against your Endowment policy. However, in order to take advantage of these benefits, you must pay the policy premium for a minimum period of time and confirm with your assurer whether your policy includes such a provision.

Also read - Why Should You Consider Investing In Endowment Policy?

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.