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Every individual has different insurance needs. Insurance providers recognize the need for policies that will cater to such varying conditions. Accordingly, they offer plans with a combination of benefits that will be valuable to the policyholders. Life insurance plans also provide the insured with the option to customize the benefits according to their requirements.
As someone investing in a life insurance plan, it is essential to understand what is endowment plan. It is one of the types of life insurance policies that allow the insured to create wealth and ensure a financial cushion for their loved ones. The endowment plan meaning implies the insured can save regularly over a period to receive a lump sum amount when the plan matures.
You might wonder what is endowment plan known explicitly for? Its simplicity allows the building of a risk-free savings corpus and the performing functions of an insurance plan that sets it apart.
Types of Endowment Plans
Now that you know the basics of what is an endowment policy, let's take a look at the different types of endowment plans available.
1. With Profit Endowment
Under the Full/With Profit endowment plan, a basic sum is assured to the policyholder at the start of the plan. However, the final payout is comparatively much higher than the basic amount since it combines specific bonuses announced by the company during the plan's tenure.
Once declared, the bonuses become a part of the policy and are received by the beneficiary upon a claim or after maturity.
2. Non-Profit Endowment
In the case of a non-profit endowment plan, a predetermined lump sum amount is payable at the time of maturity or to the beneficiary in case of policyholder's demise, whichever occurs earlier. However, unlike full endowment plans, they come without any bonuses, and the sum remains unchanged. These are fully guaranteed in nature.
Benefits of Investing in Endowment Plans
1. Maturity Benefit
The maturity benefit with endowment plans remains intact as long as the policyholder pays timely premiums. The maturity benefit depends on several factors, such as the policy tenure, premium amount, policyholder's gender, age, and more. The amount received as maturity benefit is also tax-free.
2. Life Insurance Benefit
An endowment plan ensures that your loved ones maintain a peaceful life even in times of crisis. The life insurance benefit provides them with a lump-sum payout, a fixed amount, given at the time of claim settlement. Some policies also offer additional benefits in the form of a reversionary bonus.
Also Read: Benefits of Life Insurance
3. Tax Benefit
Under Section 80C, the premiums payable under an endowment plan are eligible for a tax deduction. Furthermore, there are tax benefits on the maturity benefit as well. It helps reduce financial stress on your family during the policy tenure and in a time of need.
4. Loan Benefit
Once a policy acquires a surrender value, you can take a policy loan. It might be helpful during an emergency when you need immediate financial assistance.
5. Rider Benefits
There are several riders offered along with the endowment plan to strengthen their coverage. Some of these are accidental death rider, critical illness cover, disability, waiver of premium, and more.
3. Tax Benefit
Under Section 80C, the premiums payable under an endowment plan are eligible for a tax deduction. Furthermore, there are tax benefits on the maturity benefit as well. It helps reduce financial stress on your family during the policy tenure and in a time of need.
4. Loan Benefit
Once a policy acquires a surrender value, you can take a policy loan. It might be helpful during an emergency when you need immediate financial assistance.
5. Rider Benefits
There are several riders offered along with the endowment plan to strengthen their coverage. Some of these are accidental death rider, critical illness cover, disability, waiver of premium, and more.
Features of Endowment Plans
It is essential to understand what is an endowment policy capable of offering once you purchase it. Here are some of the prominent features:
- Premium Payment Frequency
The frequency of the premium payment is upto the policyholder. They can choose to pay them quarterly, half-yearly, or a yearly basis. Additionally, they can also deliver the amount in regular, single, or limited payments as per the policy terms.
- Death Along with Survival Benefits
In case of loss of the policyholder's life, the beneficiary receives the sum assured and any applicable bonus on the benefit. If the policy matures, the insured will receive the sum assured, as applicable as maturity benefit.
- Flexibility in Cover
The endowment plans allow the insured to customize the plan according to their needs. They can add suitable riders such as critical illness, accidental death, waiver of premium, and more.
- Corpus Creation
Whether it is survival or insurance benefit, higher returns are what is endowment plan capable of offering to the insured or the beneficiary. It provides financial protection and builds a corpus of wealth than can be used for future expenses.
- Tax Benefits
As mentioned earlier, the premiums payable towards the endowment plans and the maturity benefit are eligible for tax benefits under the Income Tax Act, 1961.
- Low Risk
Since the endowment plan premiums are not invested directly towards equity funds or stock markets, the risk is comparatively lower than that of mutual funds or ULIPs.
Also Read: What is ULIP?
Who Should Buy Endowment Plans?
You must carefully assess your specific requirements financially before investing in an insurance plan. It is suggestable to the individuals with a steady income flow who require a lump-sum payment after a certain period to opt for endowment plans.
Endowment plans are appropriate for your long-term financial goals. It helps build a corpus that will be valuable during financial contingencies. If you are not willing to take enormous risks for returns, it will work in your favour. However, when we talk of term plan vs. endowment plan, individuals who only require life insurance coverage should go for the former instead of the latter. Be sure to calculate the coverage you need when investing in term plans.
Who Should Buy Endowment Plans?
You must carefully assess your specific requirements financially before investing in an insurance plan. It is suggestable to the individuals with a steady income flow who require a lump-sum payment after a certain period to opt for endowment plans.
Endowment plans are appropriate for your long-term financial goals. It helps build a corpus that will be valuable during financial contingencies. If you are not willing to take enormous risks for returns, it will work in your favour. However, when we talk of term plan vs. endowment plan, individuals who only require life insurance coverage should go for the former instead of the latter. Be sure to calculate the coverage you need when investing in term plans.
What Should You Look for While Buying an Endowment Plan?
Here are a few things you must remember when looking for an endowment plan to purchase.
- Financial Planning
When it comes to buy an insurance policy, it is imperative to understand how your options are aligned with your financial condition. In general, it is favourable to begin early planning for insurance policy investments as it increases the policy tenure duration. In the case of endowment plans, it will allow you to build a larger corpus over time and better returns.
Also Read: What is Financial Planning? How to do Financial Planning?
- Affordable Premium
Among policyholders, an affordable premium is often of utmost priority. Since the endowment plan is a long-term financial commitment, ensure the affordability of the payable premium.
- Bonuses
The with-profit endowment plan's distinctive feature is that it offers bonuses over the sum assured to the policyholder. It depends on the performance of the insurance company.
- Riders
Riders are useful in customizing an insurance plan to optimize the benefits. While purchasing an endowment plan, be sure to understand the terms and features of riders that suit your requirements.
- Claim Settlement Ratio
For the policyholder, Claim Settlement Ratio helps evaluate your insurance provider's ability and record of settling claims towards policies. It will give you an idea what to expect regarding the process and speed of claim settlement.
Frequently Asked Questions (FAQs)
Q. Why Should I Invest in Endowment Plans?
A. If you are interested in saving and ensuring life coverage, endowment plans are a suitable option for you.
Q. What Should I know about Term Plan Vs. Endowment Plan?
A. Term plans offer a predetermined payout in case of loss of life before the maturity of the policy. Endowment plans provide the sum assured (and bonus, if applicable) upon maturity to the policyholder or the beneficiary upon the claim.
Q. What Is Reversionary Bonus?
A. Reversionary bonus is an additional amount that is payable upon death or maturity in a with profit endowment plan. Once the reversionary bonus is made, it cannot be withdrawn.
Q. What Is Terminal Bonus?
A. It is a one-time bonus applicable to the maturity or the death of the insured. The insurance provider offers it once the policy has been in place till its original term.
Q. Can I Receive Bonus Along with Sum Assured When the Policy Matures?
A. Yes, under with-profit plans, you are eligible for a bonus along with the sum assured, provided that the policy has been active for a minimum duration.
ARN No: Sept21/Bg/08A
