Endowment Plan: A Smart Investment Tool

Just the way you have switched from using landlines to smartphones to communicate, people now choose investment tools like endowment plans when it comes to savings. 

Ramesh and Ajay were two brothers. They had a gap of 10 years in their age and hence the difference in their opinions. Ramesh thought of saving money every month by keeping it aside with his wife. Every month Ramesh managed to save Rs.10,000/- for 10 years. It sums up to Rs.1,20,000 per year for 10 years. The total amount of savings in 10 years that Ramesh will manage to make is Rs.12,00,000/-. On the other hand, Ajay was always aggressive to save. He preferred buying an endowment plan that gave him an opportunity to invest his money. At the end of a few years, Ajay saved more because of the power of compounding that applies. Ajay purchased an endowment plan, in which he paid only Rs.1.62 lakhs in 8 years and he earned a total benefit of Rs.87 lakhs. Obviously, out of the two, the latter seems lucrative. 

If you are willing to save a huge amount of money in life for your future goals, you must buy an endowment plan. Let us read further what the insurance policy is all about.

What is an endowment plan?

An endowment plan is also called a savings insurance plan that gives you an opportunity to save money over years. The insurance policy pays you in a lump sum at the maturity of the policy. An endowment plan provides financial assistance to the family of the life insured in case of the unfortunate demise of the life insured.

Endowment plans are commonly participating plans that offer wealth appreciation over years in which the insurance company shares profits with the policyholders. 

It is great to know that the maturity benefit of the life insurance policy comes with bonuses and the sum assured. This is the combination that makes it a smart choice for the buyers.

Let us see another reason why an endowment plan is a great investment choice.

Benefits of the Endowment Plan.

An endowment plan or savings plan offers these benefits:

  1. Maturity benefit: The endowment plans come with the maturity benefit if the life insured survives the policy term. Along with the sum assured, the insurance company releases a bonus at the time of maturity. 
  2. Wealth Appreciation: The wealth appreciates under the endowment plan when the insurance company declares the bonus. An insurer can choose to declare any of the two: reversionary bonus or terminal bonus. An endowment or savings plan are participating insurance plan that allow wealth appreciation when the insurer declares bonuses.
  3. Additional Coverage: The endowment plan can be enhanced with the riders to increase the scope of the coverage. These riders are available at an additional cost that can be included either at the inception of the policy or at the time of the revival of the policy. Some of the common rider covers are Accidental Death Benefit, Critical Illness Benefit, Hospital Care Rider, Surgical Care Rider, Waiver of Premium, etc. 
  4. Life cover: A savings plan is an investment cum insurance policy that provides financial protection to the nominee if the life insured passes away during the policy term.
  5. Tax Benefit: The life insurance savings plan provides tax benefits also. All the premium paid under the savings plan is eligible for tax deduction under Section 80C of the Income Tax Act,1961. Apart from this, the maturity benefit received at the end of the policy is also tax-exempt as per Section 10(10D).

What are the types of Endowment Plans that you can choose?

These are the types of endowment plans that you can choose from:

  1. Unit-Linked Insurance Plans: Unit-linked endowment plans are a type of fixed-term savings plan that includes life insurance. The premium paid to the plan is invested in various market-linked investment alternatives chosen by the life assured under this plan. This form of an endowment plan is appropriate for those who enjoy taking risks. The performance of investment options in the market determines the return on investment in such policies.
  2. Low-cost endowment plans: Low-cost endowment plans assist the life assured in accumulating assets that can be paid after a set period of time, usually for mortgage repayment.
  3. Full-profit endowment plans: The basic sum assured is supplied to the life assured under full-profit endowment plans. However, depending on the bonuses reported on the endowment policy at the end of each year, the overall payout is larger. The bonus is paid out at the end of the policy term or when the plan matures.
  4. Non-profit endowment plans: In non-profit endowment plans, the life insured receives a maturity benefit if he or she lives to the end of the policy term. A death benefit is paid to the nominee in the event that the life assured dies within the policy’s term.

Depending on the requirements, one can select the type of endowment plan to create huge funds for their future goals. There are other factors also that you can keep in mind while selecting the endowment plan for you.

Factors to consider before buying an endowment plan

These are the factors that you can consider before buying an endowment plan:

  • See plan returns: You should evaluate the returns that the plan yields. The insurance company representative may inform you of returns that you will get at the maturity of the policy. It is better that you choose the plan that gives benefits as per your expectations.
  • Availability: Find out if the plan and the services are available online or not. If the insurance plan is available online, it is better for you. The policy saves you some time and money, 
  • Match goals: Buy the endowment plan in consideration of your goals. If you carry long-term goals, then you must evaluate the returns under the plan. Compare the insurance policies and pick the one that gives returns allowing the one to fulfill your goals. For example, you might need Rs.50 lakhs after 5 years for the renovation of your house. Buy a savings plan that pays you Rs.50 lakhs or the same.
  • Features of the savings plan: Before buying an endowment plan, find out the features of the insurance policy. Check the premium payment term, policy term, payment frequency, maturity benefit, etc. The plan you choose should suffice with your earning capacity, risk appetite, current life stage, etc.
  • The reputation of the insurer: There are several life insurance companies. But you must choose a life insurance policy from the one that has a high-claim ratio and that offers fast services. 
  • Types of the endowment plan: When you know your goal clearly, you must be aware of the different types of the endowment plan. No amount is legally agreed upon, but the insurer will always indicate an approximate amount for you to decide your purchase.

Conclusion

An endowment plan is a smart investment tool as it comes with the maturity benefit that comprises the bonuses declared by the insurer and the sum assured. Keeping in mind the goals and the expected returns, you can buy an endowment plan to build a fund and secure your family. For more information on the endowment plan, you can read it here. 

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