5 Tips To Consider While Buying the Best Endowment Plan
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Endowment plans are life insurance policies that not only cover the individual’s life in case of an unfortunate event, but also offer maturity benefits at the end of the term. After a specific period of time- called ‘maturity’- they are designed to pay a lump sum amount. The insurance company will pay this assured sum to the endowment policy holder’s nominees in case of the holder's death or to the holder himself on a fixed date in the future.
Things You Need to 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: There are some insurance companies that offer riders as an inbuilt feature and one must never miss to get benefited 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 option 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 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 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.
- 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, he distributes a part of it to policyholders at the end of each financial year. Besides, the insurance company's profit 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. But 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
Remember, endowment plans come with a surrender value—this is the amount you receive in case you want to discontinue the plan. However, you are eligible to receive this amount only after paying the premium for at least two years. This surrender money can come handy in case of a financial emergency. That said, you should keep in mind that the surrender value is usually lower than the total premium paid in the initial policy years, which means that it isn’t a benefit as much as a partial compensation.
Also read: Is Life Insurance Preferable Or ELSS?
