Are Endowment Plans Worth It
Updated On Jul 13, 2022
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Based on your financial status and income pattern, you should invest in appropriate instruments to secure your future. There are different types of life insurance plans that offer comprehensive benefits. An endowment life insurance policy is one of the prominent ones among them. Let us understand this plan in detail.
An endowment plan refers to a life insurance policy that offers dual benefits of insurance and savings. The insurer will provide a sum assured to your nominee if your sudden demise occurs during the policy term. Apart from the death benefit, based on the type of plan chosen, a maturity benefit is provided to you if you outlive the policy or your family in your absence.
4 Things of an Endowment Life Insurance Policy You Must Know
If you have decided to get an endowment plan, you are assured of getting the following features based on the plan and your needs.
Dual benefits: One of the most important features of an endowment policy is that it provides dual benefits, life cover and savings. It is the best way to save from your income regularly in small amounts in a disciplined manner. There are different variations to the endowment plan based on individual needs.
Additionally, the plan provides guaranteed returns as a maturity benefit. The returns can be received as a lump sum amount or as regular annual or monthly income. As the returns are guaranteed during policy inception, you can plan for any short-term or long-term commitments with precision. It provides a high return in the long term and has no element of risk involved. It can be considered a good retirement plan.
Additional bonuses: Additional bonuses provided in an endowment plan are a unique characteristic. Some types of bonuses are given below:
Reversionary bonus: It is a bonus calculated and accrued every year. It is paid completely as a death or maturity benefit.
Terminal bonus: If you complete a full policy term in an endowment plan, you will receive a one-time lump sum amount. It is not available if you surrender the policy.
Cash bonus: Insurers pay cash bonuses when declared and do not accrue them until the end of the policy.
Riders: Endowment plans provide life cover with add-on rider benefits. Some of the most common riders and their purposes are as follows.
- Accidental death benefit - provides an additional lump sum amount if your death occurs due to an accident.
- Critical illness rider - the insured amount is paid for medical and hospitalization charges for a mentioned critical illness.
- Terminal illness rider - provides financial assistance for managing the medical expenses related to a terminal illness. The insurer will provide the list of illnesses covered.
- Total and permanent disability rider- helps you treat expenses related to a disability. The rider can waiver off future premium payments in case of a permanent disability.
- Return of premium rider- provides a complete refund of the premium amount paid if you outlive the policy term.
Tax benefits: Endowment life insurance policy is known for providing tax benefits. The premium amount paid up to Rs 1,50,000 in a year qualifies for a tax deduction under the Income Tax Act, 1961. Also, the returns earned as a maturity benefit as well as the death benefits are tax-exempted based on the plan and the terms and conditions.
Conclusion
Endowment plans have been designed exclusively to provide insurance and savings benefits. Apart from the sum assured, it provides additional bonuses and tax benefits. The ULIP can provide market-linked returns also if desired. To ensure maximum protection from an endowment assurance policy, you must make the best decision based on your family’s financial requirements. Most importantly, start early and stay invested for long!
Also read: 5 Things to Consider When Buying Endowment Policy
