Everything You Need To Know About Endowment Plan

You might have heard your elders talking about ‘saving for the future’ or ‘investing for the future’, and it is partly something which endowment policies are meant for. It is a type of insurance policy with various benefits. If you are new to this, you’ll find everything you need to know about endowment policies in detail.

An endowment policy can be described as a life insurance policy wherein a designated sum of money is released to the insurer after a certain defined period or to his/her family members after the insurer’s death. The amount obtained at the time of maturity can be used for multiple uses such as a child’s education, marriage, buying a house or saving for retirement.

1. Unit linked endowment plan –

This plan is a fixed-term plan that comes with dual benefits of savings as well as investment components. The premiums paid towards this plan get divided into two parts one part goes towards the insurance policy while the rest gets invested in funds chosen by you depending on your risk appetite.

2. Low cost endowment plan –

This plan is designed to help policy holder build a corpus for future and is usually used to repay mortgage, loan amount, etc. In case of early demise of the insured person during the term the sum assured is paid to the beneficiaries of the insured person.

3. Full/ with profit endowment policy –

In this policy a basic sum assured as much as the death value is provided to the policyholder, which is guaranteed at time of policy purchase. The final pay-out received under this policy is higher as compared to other types of endowment policies as it offers sum assured amount plus the bonus amount.

4. Non-profit endowment policy –

This policy is straight and simple as it provides only the sum assured amount to the beneficiaries of the policyholder as death benefit or as maturity benefit to the policyholder.

5. Guaranteed endowment policy –

This type of endowment plan guarantees that the sum assured gets paid to the beneficiaries of the policy holder whether he/she dies early or lives until the maturity of the policy. At the time of maturity, the face value of the policy gets paid to the policy holder.

• Multi-purpose Savings: The money accumulated by opting for an endowment policy can be used up for various reasons. In case of death of the insurer, the family gets the sum along with bonuses.
• Different from Life Insurance Policies: An endowment policy helps secure your family’s future after your demise. The payout for survival and death benefit is more in the case of endowment policies as compared to life insurance policies.
• Flexible: The base plan can be enhanced by adding some criteria which include critical illness, permanent disability or accidental death cover.
• Premium Payment: The premium can be paid in about four variations - monthly, quarterly, half-yearly or annually.
• Tax Exemptions: The policyholders are exempted from tax on premium payments under section 80C and also on the maturity and payouts under section 10D.

Endowment policies act as a cover for future savings and offer a disciplined way of saving money for the future. They are a source of saving which will help the family in case something happens to the primary breadwinner. While the returns are lower as compared to term plans, the risks involved are also minimal, so it is not much of a hassle. In case the insured survives the policy period, (s)he gets the whole amount.

An endowment policy is beneficial for every individual who is the primary or secondary breadwinner of the family. Anyone who has a regular stream of income and future responsibilities on their head with a family to look after should consider buying these policies.Salaried individuals, small businessmen and professionals should opt for these policies as it can give them financial independence and security without risking a lot in the process. While there are many types of life insurance policies , an endowment plan gives you a protective cover while also helping you save for the future.

Endowment policies provide the much required risk-free investment to individuals who have a steady flow of income and are looking for a long term plan. The main aim of an endowment policy is to provide maximum compensation in return of long-term plans. The longer the policy period, the more amount of money can be claimed during the maturity period. The endowment policies can benefit individuals as they’ll be able to secure their loved ones, set a future financial target, goals and objectives in terms of personal finance.

Buying an endowment policy is quite straightforward, but there are certain factors that you need to keep in mind before making your first purchase. These are listed down below:

1. A Regular Flow of Income Investing in an endowment policy is the first step of securing your future, but before that, you must have a reliable and regular source of income.
2. Selecting the Perfect Endowment Policy Just like all insurance plans, the market is filled with tons of endowment policies, so you must check them all before selecting the most suitable one for yourself according to various factors.
3. Check the Premium Rates Endowment policy premium rates are a bit higher as compared to a regular insurance policy. Always go with the one that you can afford and find beneficial in the long run. A small mistake here can cost more in future.
4. Company’s Bonus Record Different endowment policy companies offer different bonus rates. You must check the insurance company’s track record regarding the bonus payments.
5. Try to Pick Simple Plans Avoid availing plans that have long pages of terms and conditions to meet the repayment criteria. Instead, go for an which is simple to understand and doesn’t have complicated features or terms.

With the uncountable investment options available in the market these days, it becomes fairly difficult for the general public to understand how to put finances to yield maximum outputs in the future. Endowment policies help such individuals by providing them not only a cover for their lives but also giving them a financial goal for the future.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.