Endowment plan is a life insurance policy which helps accumulate wealth besides covering the insured’s life. This policy helps in obtaining a lump sum amount on maturity if the insured person survives through the term of the policy. The amount can be useful for fulfilling many financial requirements, such as marriage or education of the children, retirement funding or purchasing a house.
Characteristics of an Endowment Policy:
The entire sum assured is paid to the beneficiaries if the insured expires during the term of the policy or to the policyholder if he/she survives through the term. The endowment policy fulfills the dual need of savings as well as life cover under just a single plan.
Two types of policies are generally present: one without profit and one with profit. Within these two categories, various plans are customized for pension, protection of whole life, education of child and other needs.
Under section 80 C, tax benefits can also be availed through this plan. Basically, the policy helps in goal-based savings for individuals. In case of any financial emergency, loans can also be obtained against the endowment policy.
Who Should Buy The Endowment Policy?
Individuals who have no control over their spending and do not possess any financial backup can choose an endowment plan as their savings option. Especially after retirement, they will surely require a huge amount of money and therefore this plan can guide you through a much disciplined way of savings. Whoever wants to meet different financial goals of savings or life coverage can opt for this type of plan.
Right Time To Purchase The Plan:
For fulfilling their financial needs, individuals require investments which are risk-free in nature. Therefore, to protect the loved ones and to provide financial security, endowment plans can be purchased by them. It will also help in creating goals for your savings and for designing a corpus to obtain the financial objectives for long term. But if you are going for a regular plan with premium, you should opt for it if you have an steady flow of income. The plan is actually useful for reaching long-term financial goals.
Purpose Of Buying Endowment Plans:
The important reasons for purchasing this plan is that it provides the option of saving money in a disciplined manner and helps in planning the finance for your future. Besides, the insured individual also gets life coverage with this policy. Though the plan may provide you lower returns, tax benefits can be availed by the policyholder. This policy can be ideal for risk-averse investors as it provides maturity benefits along with the death benefit. The nominee of the policy can easily avail the death benefit if any eventuality occurs.
Checklist before Buying an Endowment Policy:
You will find many types of endowment plans in the market. So, you should choose a policy which is ideal for you according to your requirements. You should also take into account different factors like income, risk appetite, individual requirements, present life stage etc. You should compare the quotes from different insurance companies before investing a huge amount in any endowment plan. When you check various premium plans, it will be easier for you to choose the perfect one for you. You should also check the background or the history of insurance companies. Though the endowment plans will provide you lesser returns, it is safer than other insurance plans. While deciding your saving options, the rates of return can play a great role. So the buyers should know the rates of return.
You should also find out if the policy will give any bonus or not. The bonus declared may not be immediately paid. The bonus is actually accumulated and paid when the policy matures, or is paid to the nominees if the policyholder dies during the term of the policy.
There are some other factors that need to be checked, like the ratio of the claim settlement, quality of the customer service, track history and the financial stability of the company, etc.
For availing the maximum benefits of the endowment plan, one should understand the details of the policy and should opt for a simple plan, which is easy to understand. You should avoid the plans which have complex features. Always read the documents and the fine prints before signing. All the points discussed above will help you in choosing the right endowment plan. You should understand your risk appetite and financial condition before investing a part of your income in any endowment plan.
(The author is CEO & Founder, PolicyX.com)