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Advantages & Disadvantages of Endowment Policy

Updated On Jan 08, 2024

Endowment insurance coverage is a customized plan that combines a term policy and a savings program. As the assurer, you determine how much you want to save each month and when you want the insurance to mature. You're promised a certain payout, known as an endowment, when the policy matures, predicated upon your monthly contributions. This endowment can then be utilized to cover university fees, taxes, books, living costs, and other expenses for your child. Your child will get the payout as your death benefit if you die before the policy matures, allowing them to save for college.

Advantages of Endowment Plan

Some of the benefits of buying endowment plans are listed below:

1. Plans That Are Low-Risk

Endowment plans are offered as low-risk investments for those with a low-risk tolerance. These programs don't operate in a high-risk environment and provide assured returns. It broadens the strategy by allowing investors who aren't interested in the thrills of the stock market to participate.

2. Planned Savings

Endowment plans, usually referred to as planned savings plans, are popular among investors because they provide a two-fold benefit. These plans offer both savings and insurance coverage to the policyholder's family. It's a preventative measure that will aid you in anticipating future requirements.

To build a future savings fund, endowment programs are widely used. Premiums are deposited on a regular basis, encouraging long-term financial planning.

3. The Advantages Of Maturity And Death

If the client survives to the end of the course, the money promised, plus any achieved bonuses will be assured. If the life assured is lost, the specified beneficiaries receive the sum assured plus bonuses ( if any). As a consequence, endowment funds provide investors with both survival and death benefits.

Disadvantages of Endowment Plan

Below are a few disadvantages of the Endowment Plan:

1. Policy Premiums

Policyholders must forego some spending levels in order to pay insurance contracts. In addition, life insurance is frequently purchased for the benefit of others, with the assured person serving as a supplementary beneficiary.

2. Cash Surrender Values

Cash surrender values are typically lower than premiums paid in the first few years of the policy, and a policy owner may not be able to recoup all of the premiums paid if the policy is surrendered.

3. The Decision To Get Life Insurance

It can be tough to decide whether or not to buy life insurance and how to position it, especially if the policy is for estate planning, business issues, or complex familial scenarios.

4. Market-Linked Plans Produce Lower Returns

Although obtaining a huge sum of money at the end of the maturity term appears to be a bonus, the return is exceedingly low. Premiums do not offer the same long-term returns as other investments.

However, please remember that the real money charged will be decided on the assurer's fund performance.

Conclusion

An endowment policy incorporates financial and income protection in one package. In the event of the life assured's untimely death, thusie nominee gets paid an amount assured. This plan also includes a maturity benefit, which means that if the life guaranteed lives to the end of the policy term, he or she will get a maturity benefit at plan maturity. As endowment plans are participating plans, they also provide assured additions in the form of a yearly bonus declared on the policy during the policy term. Endowment programs are an excellent approach to secure a steady stream of income. Investors who purchase an endowment plan gain access to thousands of benefits. It all comes down to the investor's personal preferences. This article's contents will assist you in making an educated selection.

Also read - Significant Features Of An Endowment Plan

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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