Advantages And Limitations Of An Endowment Policy
Updated On Oct 03, 2021
Endowment policies are a combination of savings and life cover which also provide wealth appreciation. Some endowment policies are participating, i.e., participate in the profits of the insurance provider hence, the benefit of wealth appreciation is provided under some endowment policies. Under endowment policies a death benefit is provided to the beneficiary/nominee in case of an unforeseen demise of the life assured during the coverage period. Endowment plans help a person ensure financial security of their family from the uncertainties of life.
These types of life insurance policies also provide a maturity benefit to the life assured at the end of the policy term in case the life assured is able to survive the entire policy tenure. Some endowment policies allow wealth appreciation i.e. participation in profits of the insurance provider, additional bonuses (if any) shall be provided along with the death benefit and maturity benefit.
Advantages of an Endowment Policy
Below mentioned are some major benefits of purchasing of an endowment policy:
- Low Risk Involved: Endowment policies are considered as a low risk investment option and are ideal for people with a low risk appetite. Endowment policies do not work in a high-risk market and offer guaranteed returns based on the performance of the insurance provider. Endowment plans are non-linked which means your money is not investment in different market linked investment tools.
- Financial Security: Endowment plans are a great way to ensure financial security for yourself and your family from the uncertainties of life such as your unforeseen demise during the coverage period. Under an endowment policy, a death benefit is provided to the beneficiary/nominee in case of a sudden demise of the life assured during the coverage period. This benefit of an endowment plan can help you ensure financial protection for your family and help them maintain a decent lifestyle even in your absence.
- Maturity Benefit: Under an endowment plan maturity benefit which is equal to the sum assured and additional bonus (if any) shall be provided to the life assured in case he/she is able to survive the entire coverage period. This way the life assured can have funds to pursue his/her dreams or fulfil pre-planned financial goals.
- Wealth Appreciation: Most endowment policies allow wealth appreciation as these types of plans participate in the profits of the insurance provider according to the performance of insurance providers in the market. Most endowment plans declare yearly reversionary or terminal bonuses (if any), which shall be provided with the death benefit or maturity benefit.
Limitation of an Endowment Policy
There is only one drawback of endowment policy which is that the returns on investments are mediocre. You may receive a large amount of maturity benefit at the end of the policy term, but the returns are not as high as compared to market linked investment tools. However, it is not sure that the yearly bonus may be declared at the end of each policy year as it all depends on the performance of the insurance provider.
Endowment policies have become popular amongst investors because they provide two-fold benefit. These plans offer savings and life cover to the policyholder. Endowment policies have become popular because of its ability to help the life assured to accumulate a savings fund for the future.
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.