Things to know before buying an Endowment Plan
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An endowment policy is a form of life insurance that also offers an avenue for reliable savings for the policy. When a policyholder buys and pays the premium for an endowment policy, a portion of the fund goes towards the life insurance premium and the other half is allocated as savings. An endowment plan is an excellent way to save money regularly over some time while also getting life insurance coverage.
The main benefit of an endowment insurance policy is that if the policyholder survives the duration of the policy period, the full amount of money invested in the policy is returned to the insured in the form of maturity benefits along with any bonus if applicable. In case of the untimely death of the policyholder, while the endowment plan is still active, the sum assured is provided to the beneficiary in the form of a death benefit along with any bonus if applicable.
What is an Endowment Plan?
Endowment plans are similar to our regular insurance policies. They not only provide you with a life cover but also help you save regularly. Once the policy matures with the given condition that the policyholder has survived the policy term, he/she will receive a lump sum amount. This amount can be utilized to meet financial needs like purchasing property, children’s education, retirement etc.
Things to Know Before Buying an Endowment Plan in 2024
Following are the important details that an individual should know before buying an endowment plan.
Begin planning early: When it comes to investing, it is always considered ‘the earlier the better’ as it offers a long horizon for your investment to grow. This, in turn, will help the insured to build a corpus and facilitate disciplined saving.
Select a plan that offers riders: Some insurance companies offer riders as an inbuilt feature and one must never miss to get benefits out of it. Additional benefits would include benefits like education endowment, double endowment policy or marriage endowment policy.
Review flexibility option: Insurers offering endowment plans provide flexible options i:e. 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.
Guaranteed and Non-Guaranteed Returns: Apart from offering low-risk insurance and dual benefit of death cover and saving features, 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 and it depends on the investment performance.
Bonuses: Bonuses will be declared by the insurance company depending on how the company has performed. When the insurer has made profits from its investments, it distributes a part of 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.
How to Choose an Endowment Policy?
The market is flooded with different types of endowment policies. However there are several factors an individual should keep in mind while choosing the right endowment policy. Factors like income, an individual’s needs, current life stage, and risk appetite should be considered while choosing an endowment policy.
The cost of the premium is also the deciding factor as premium endowment plans are costly as compared to other investment plans. Also, other factors to keep in mind would be the insurance provider’s track record in terms of the bonuses, customer service provided by the insurer, their claim settlement ratio, financial status of the insurer, etc.
Conclusion
These policies are typically traditional with-profits or unit-linked (including those with unitised with-profits funds the holder then receives the surrender value which is determined by the insurance company depending on how long the policy has been running and how much has been paid into it.
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