An endowment insurance policy is an insurance plan that pays the face amount of an insurance policy after a certain period at maturity or on the death of the insured, whichever is earlier. On the other hand, pure life insurance, like a term insurance plan, pays only if the insured person dies.
An endowment policy is also a form of financial saving. If the covered person remains alive beyond the policy’s tenure, he gets the sum assured along with other investment benefits that an insurance company may declare.
In addition to the basic policy, insurers offer various benefits such as double endowment, marriage, and education plans. The cost of such a policy, i.e., insurance, the premium would be higher but worth its value.
It’s essential to provide nominations in an insurance plan so that the nominee or nominees receive the sum assured and the bonus. An endowment policy is an excellent way to help you meet financial goals such as making a provision for children’s education, marriage, purchasing a house or repayment of a home loan, and even planning your retirement.
Salient Features of an Endowment Plan
Death or Survival Benefits
In case of death of an insured, the nominee will receive the sum assured along with the earned bonuses. On the other hand, if an insured outlives the policy term, the same will be given to the insured.
An endowment plan allows an insured to build a secure financial future, thus protecting the insured and insured’s family members. Death and survival benefits are usually high compared to other life insurance policies.
Premium Payment Frequency
Insurance premiums can be paid depending on your chosen policy type. It could be paid monthly, quarterly, half-yearly, and annually.
Add-on benefits in the form of riders could be added for critical illness cover, total permanent disability, and accidental death. The cost of these riders is marginal but provides enormous benefits without the need of taking additional insurance for these rider benefits.
Tax benefits in the form of exemption are available on both premiums paid and the amount received after policy maturity under Section 80C and Section 10(10D) of the Income Tax Act, 1961. Benefits of the tax deduction for premium are available U/s 80 D and tax exemption for maturity benefit U/s 10(10D).
Types of Endowment Plans
With Profit Endowment Plan or Participating Plans: Under a with-profit endowment plan, the insurance company declares bonuses. The sum assured is payable in case of death or maturity. Bonus is the additional component. The bonus is a part of the profit earned by the insurer.
Non, Without Profit Endowment Plans or Non-Participating Plans: These plans offer guaranteed benefits on death and maturity.
Unit-Linked Endowment Plans: When you opt for unit-linked endowment plans, the premium paid is invested in different investment funds of your choice, thereby earning you market-linked returns. These investment funds provide a selection of equity, balanced, and debt funds.
What are the Benefits of Endowment Insurance?
You never know when you will die, and while the odds might be remote in the immediate future, having life insurance is always a smart idea. There are various life insurance options, and endowment insurance is just one of many.
Since endowment insurance also serves as a savings account, it can help you be more responsible with your money. But in the end, it doesn’t necessarily offer higher quality or more value than other insurance plans. Some people still prefer it.
Common reasons someone would prefer an Endowment Policy
- Regular Savings Feature
- Long-Term Capital Accumulation
- Bonus Amount, in some plans.
How Much Does Endowment Insurance Cost?
An endowment policy will most likely cost more than other insurance plans like Term Insurance. This is because an endowment policy premium will include both mortality charges and an investment element. In contrast, a pure insurance policy, like a term insurance policy, will consist of only mortality charges.
An endowment plan is an excellent option for building saving habits, and saved money accumulates into an investment corpus over a period, say 10 or 20 years, depending upon the policy’s tenure.
Further, if you buy an endowment policy that matures in 15 or 20 years, the cash value will build faster than a traditional or whole-life term policy. However, you’ll be paying a higher premium. The exact cost will depend on the time and money you’ll want to put in.
Conclusion: Choosing a Right Endowment Insurance Plan
Endowment insurance can help you achieve peace of mind by providing life protection and financial stability.
Some of the points that should be considered when choosing an Endowment Insurance Plan
- Choose plans that offer more extended coverage with a shorter payment period.
- Know the difference between Guaranteed Vs. Non-Guaranteed Returns.
- Choose plans that offer riders.
- Estimate your maturity age and the benefits you’re getting.
The above tips will ensure you get a head start in choosing the right plan.
An online search can help you choose an insurance provider. Even if you consult these, you should discuss the plan and options with an independent adviser for an unbiased opinion.