A Guide to Endowment Plans

Life insurance policies serve as a tool for policyholders to cover unforeseen circumstances. However, when talking about endowment plans, they tend to provide a dual benefit. That is, they provide policyholders with the advantage of both an insurance cover as well as the ability to ensure savings are made via the premiums being paid. The amount accrued is made available to the policyholder once the policy reaches maturity assuming that the policy holder survives the tenure of the policy.

In the event of the death of the policyholder, beneficiaries are made eligible to receive the lump sum amount. This serves as an advantage to policyholders and their loved ones allowing them a financial safety net for expenses such as higher education, marriage or even making a large purchase.

Ok, But What Are The Different Types of Endowment Plans Available In The Market?

There are multiple options available in the market that fall under an endowment plan. The key options as given below-

1. ULIP Endowment Plans

The endowment plan of the Unit Linked Insurance Policy allows policyholders an investment option over and above the insurance policy. ULIPs allow for investors to have the leeway of choosing their investment between equity, debt or a mix of both. This allows investors to go for an option based on their financial goals and risk-taking ability.

2. Endowment With Full Profit

This plan has a sum assured component similar to other insurance plans. However, the final payout tends to be slightly higher compared to the agreed-upon sum assured as policyholders are entitled to bonus payouts that are announced by the companies from time to time. 

3. Endowment of Low-Cost

This endowment plan is designed to cater to allow policyholders the option to accumulate a lump sum to pay off a specific amount owed such as existing loans or mortgages.

4. Endowment of Non-Profit

Unlike full-profit endowment plans, non-profit endowment plans do not provide bonuses to the policyholder. However, to maintain the competitive nature of this product and make it an attractive option for those looking to invest, providers of the policy give out guaranteed returns to the policyholder decided before the payment of the premiums.

Top 5 Frequently Asked Questions About Endowment Plans

Is Endowment Plan Risk-Free?

For investors looking for a risk-free instrument to invest in, endowment plans certainly do the trick. They allow for the accumulation of savings that may be used in the future. Premiums paid by investors can be done at regular intervals in a risk-free manner.

Do Endowment PLans have an eligibility criterion?

The short answer is, yes. The maximum age to apply for an endowment policy is usually between 55 to 60. However, this is subject to variation from provider to provider. It is usually advised to invest in a policy at a relatively young age thereby reducing the financial burden.

Are there Tax benefits on Endowment plans?

All types of endowment plans allow investors to leverage tax benefits. That is, the premiums being paid to allow investors to reduce their net income, thereby allowing for lower tax on income. Under the Income Tax Act, investors may avail of deduction in taxes of up to ₹1.5 Lakh.

Who are Endowment plans intended for?

When looking at risker investments like mutual funds, stocks, and cryptocurrencies, endowment plans are relatively low-risk investments. Additionally, those looking to benefit from both insurance and savings may choose to opt for an endowment plan. That being said, anyone looking to gain some form of financial stability may choose to go for what endowment plans have to offer.

Are there Riders that can be added on top of an existing Endowment Plan?

It may be common for policyholders to want coverage over and above the one provided by an endowment plan. In such cases, policyholders may opt for various riders. These riders help ensure coverage against specific events or unforeseen circumstances.

A few riders available in the market are as stated below:

• Benefits of accidental death
• Benefits due to permanent disability
• Benefits due to critical illness

Key Takeaways

Insurance plans are an essential tool to be leveraged by individuals that allow for a safety net when it comes to times of uncertainty. Similar to other financial investments, endowment policies best serve their purpose when individuals opt for one sooner than later. This ensures a reduced financial burden when it comes to premium payments, allowing to achieve financial freedom. 

Although there is various considerations that is needed to be weighed in, before taking the policy it is important to be aware of all the terms and guidelines to ensure that you may plan your finances and premium payments accordingly. 

Also read: Is ULIP Preferable to the Endowment?

Which Is Best For Me: Equities Or Endowment Policy?