Are Endowment Plans Preferable Than Fixed Deposits?
Published On Feb 23, 2022 11:00 AM By InsuranceDekho
Table of Contents
- Endowment Plans: Why Should You Consider Them?
- Fixed Deposits: Why Should You Use Them?
Endowment insurance is a form of a savings plan with a tiny bit of life insurance thrown in for good measure. Monthly premiums (savings payments) are calculated based on the amount you want to receive at the end of the plan's term. Endowment plans are referred to as "forced savings" since you must pay your premiums or your policy would lapse. Your premiums will not, however, be utilized entirely to fund your savings account.
A fixed deposit account is a semi-flexible, low-risk savings option. Similar to endowment plans, you deposit money in the bank for a predetermined period of time, which might range from one week to three or more years. At the end of the time period, you will receive the agreed-upon cash as well as any interest that has accrued (tenure). The income you get on a fixed deposit is pre-determined at the start of the contract period, unlike endowment plans, whose rewards fluctuate occasionally based on the performance of the insurance fund.
Endowment Plans: Why Should You Consider Them?
Here are some of the benefits of endowment plans:
You've got a specific goal in mind to Save
Certain endowment plans are focused at a specific milestone, they can be a good way to obtain structured distributions for various life milestones. Because you may choose your payout, plan tenure, and premiums, an endowment plan can be a helpful savings choice if you want to prepare for events with predictable costs, such as university tuition, a wedding, a down payment, or retirement. They're especially useful if you choose an endowment plan for retirement or education tuition that pays out in cash when the time comes.
Ensure that your life insurance is up to date.
Endowment plans may be less suitable for some people because a percentage of your premium goes toward a life insurance component. Endowment plans' life insurance, unlike life insurance plans, is fairly modest and will not provide adequate coverage on its own. Endowment plans, on the other hand, maybe acceptable if you have a minor insurance gap while also looking to increase your funds. If you have enough life insurance, a fixed deposit account may be preferable.
Fixed Deposits: Why Should You Use Them?
Here are a few reasons why Fixed Deposits are a good choice:
You'll need somewhere to put your money for a short period of time.
Some fixed deposit accounts have durations of less than a year, making them good choices for people who just need to keep their money safe for a few months. Unlike endowment plans, which typically need a 2-year commitment, you can choose a set deposit tenure of 3 or 6 months. While fixed deposit accounts may charge early termination penalties and you may lose some or all of your interest, you can still get your money back. Early termination of your endowment plan, on the other hand, may result in fines.
You want to put money into a foreign currency.
Because certain banks allow you to open an account in a foreign currency, a foreign fixed deposit account may be more suitable than an endowment plan. While some endowment programs provide international currency possibilities, the majority of them are limited to the US dollar. If you wish to save in a foreign currency while also earning money from a favorable exchange rate, a foreign currency fixed deposit account could be a smart option. However, you should be aware that if the currency rate is unfavorable when your account matures, you could lose money.
To summarise, endowment plans and fixed deposit accounts are two investment options that are similar. Their terms of employment, deposit amounts, and, in some situations, returns are all adjustable. However, there are several important distinctions to be aware of. Endowment plans, for example, include a life insurance component. They can also be tailored to fulfill specific savings objectives, such as education or retirement, and payout in cash annually or monthly. Fixed deposits, on the other hand, are more secure and straightforward to get. These are also excellent choices if you wish to save in a foreign currency. When choosing a financial instrument, keep your objectives and risk tolerance in mind, and study the product's terms and conditions thoroughly.
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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.