Finance

Perks of Endowment Plans

Introduction

Shankar was employed with Northern Railways. He made Rs.70,000 per month which was sufficient to afford the living expenses in a city like Delhi. Still, there was a lot more than Shankar dreamt of achieving. It included buying a house in Delhi and saving for his daughter’s education. Though these were long-term dreams, Shankar was always eager to travel the world and make wonderful trips. The monthly expenses both [planned and unplanned left him with little scope of savings. Even if the savings were possible the proportion of money accumulated was not exponential. He always felt that the money would not be sufficient for his future goals. Shankar then started exploring the best possible ways in which he could save money. He then zeroed on to buying an endowment policy.

If you also aim to save regularly for your dreams, then plan to buy an endowment policy. But before that read further to understand what is the insurance policy?

Table of Contents.

What is an Endowment Plan?

Benefits/ Advantages of Endowment Plans

Tips to choose a perfect endowment plan.

Conclusion

What is an Endowment Plan?

Endowment plan or a savings plan is a life insurance policy that provides you an opportunity to save money along with the life insurance cover. The insurance policy provides a lump sum amount on maturity if the policy is in force and the policyholder survives the policy term.

Apart from the savings benefit, the life cover of the policy pays the nominee the sum assured in case the life insured passes away during the policy tenure. The endowment plan is a financial instrument that helps in goal-based savings like for a child’s education or marriage.

If you are still thinking about whether you should buy an endowment plan or not, you must read further about the benefits of the plan.

Benefits/ Advantages of Endowment Plans

You will invest your money only if it comes with some benefits. True?

Similarly, individuals must buy an endowment plan as it offers various advantages. These are the benefits that you can draw from the endowment or savings insurance policy.

  • Lump sum payout: The endowment policy provides lump sum payout when the policy gets matured, that is, at the end of the policy term.
  • Insurance Cover: The savings plan provides you insurance cover along with the savings benefit. If the life insured dies during the policy period, the nominee will get the death benefit provided the policy is in force. 
  • Serves you with a dual benefit: The endowment gives a push to your savings because it comes with the investment component. The life insured is allowed to invest for a long-term helping you to save huge funds for your family.
  • Option to increase the scope of cover with riders: The savings plan comes with an option to increase the scope of cover by buying additional riders. The rider covers comes with an additional nominal cost. Some of the riders that you can buy include critical illness, waiver of premium, accidental death benefit, family income benefit, and accidental or partial disability rider.
  • Additional Bonus: The insurance companies at times announce several bonuses under the policy. This bonus is the extra amount of money that can be added to the amount receivable by the individual policyholders. There are two types of bonuses that an insurance company often declares:
  1. Reversionary Bonus: This is the sum that is added to the amount payable upon maturity or death with profit. A reversionary bonus cannot be revoked once it has been announced, even if the policy matures or the covered individual dies.
  2. Terminal Bonus: After completing a defined term, such as 10 or 15 years, the insurance company will add a discretionary amount to the payout provided on the maturity of an insurance policy or the death of an insured individual.
  • Tax benefit: The savings plan gives you the benefit of tax deduction under Section 80C of Income Tax Act, 1961. The annual premium paid under the insurance policy is eligible for deduction. Apart from the premium paid in one year, the total maturity proceeds received at the end of the policy term is also tax-exempt under Section 10(10D) of Income Tax Act, 1961.

So far you have read that savings plans offer you multiple benefits. This makes it important that you must know how to choose the perfect endowment plan.

Tips to choose a perfect endowment plan.

These are the tips to choose a perfect endowment plan:

  • Start early when it is about savings: Sooner you begin to save the better it is. The logic is simple when you start early your savings will increase. Plus, beginning early gives you discipline to save.
  • Check for the returns: Though the savings plan comes with the dual benefit of savings cum life cover, you must check whether the returns of the plan are guaranteed or not. The returns that are guaranteed are payable on death or maturity. On the other hand, the non-guaranteed returns include bonuses that the insurance company declares.
  • Analyse the flexibility option: You must check whether the endowment plan provides you an opportunity to pay regular or irregular premiums. If you are in a permanent job, then you can choose the regular premium option. But if you do not have a permanent source of income, you can still save with irregular premium payment i.e. with single pay policy.
  • Select the plan that comes with riders: Buy a plan under which it is possible to enhance the coverage. You should not miss investing in the riders. They bring benefits for you with a wider coverage in the same plan.
  • Choose the plan with bonus option: Check whether in the last years, the insurance company has distributed the bonus or not. Bonuses are an important part of a savings plan, see whether you will receive the benefits or not.

Conclusion

Insurance policies like endowment plans are bought to help individuals when the time is tough. Endowment plans are a perfect buy for individuals who want to make goal-based savings. The insurance plan proves to be a smart choice for those individuals who want to establish financial security for their families. The savings plan allows one to save money systematically which results in creating a huge corpus of funds over a period of time. For more details on endowment plans, you can read here.

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