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Endowment Plan: All You Need To Know About Coverage, Suitability, And Premium

Updated On Aug 26, 2021

Endowment policies are a type of life insurance policy that combines the benefits of insurance and savings. Endowment plans allow the policyholder to save regularly over a period of time in exchange for lump-sum payment when the policy matures. If the insured lives to the end of the policy's term, the maturity amount is paid.

However, in the event of the insured's untimely death during the policy's term, the policy's beneficiary gets paid a sum assured amount as well as any bonus (if any). Furthermore, endowment policy aids in the creation of a financial buffer for the future, allowing one to satisfy both long-term and short-term financial objectives of life.

All You Need To Know About Endowment Plans

Below here, are a list of factors you must know in detail:

1. Coverage

With an endowment policy, you can possibly see your funds grow faster than the rate of inflation. Because the plans pay out a flat sum, they are ideal for consumers looking to put money down for a specific purpose. They were once popular among those who had taken out interest-only mortgages because of this. However, the popularity of endowment plans has diminished as fewer of these mortgages are available these days, especially after a mis selling incident. However, if set up to pay out a lump amount at the time of retirement, they can still serve as a complement to pension savings.

Must Read: What Are The Significant Features Of The Endowment Plans?

2. Suitability

Endowment plans offer a structured approach to saving that could come in handy in the event of a financial emergency. This plan should be considered by salaried people, small business owners, and professionals like doctors and lawyers to meet their long-term financial security demands. Endowment plans are also a good option for persons who are risk-averse and would rather settle for a lower return than take more risks. Endowment plans, in this sense, are primarily for the average person rather than the wealthy.

Riders, such as critical sickness, total disability, and accidental death, can be added to the plan by policyholders to augment their life insurance coverage. In the event of permanent disability or catastrophic illness, a few policies additionally provide premium payment waivers. Sections 80C and 10(10D) of the Internal Revenue Code exempt the policyholder from paying taxes on both premium payments and maturity or final death benefits. Because the money isn't invested directly in equity funds or the stock market, endowment policies are safer than other investment plans like mutual funds or ULIPs.

3. Premium

Depending on the insurance purchased, the policyholder can make regular, single, or limited premium payments. You can also opt to pay in yearly, half-yearly, quarterly, or monthly installments. The premium paid by the insured is divided into distinct units held in a specific investment fund chosen by the insured individual under this plan choice. The fund's return on investment is totally dependent on its market performance. This plan is best suited to those with a high-risk appetite and a desire to earn a high return on investment.

Conclusion

An endowment policy is a set of life insurance that pays out a lump sum after a specified period of time or when the policyholder dies. In the event of a catastrophic illness, an endowment policy will payout. Endowment policies are either standard with-profits or unit-linked, including those with unitized with-profits funds. The holder is subsequently paid the surrender value, which is set by the insurance company based on the length of the policy and the amount paid into it.

Also Read: Reasons Why You Should Not Quit Endowment Plans

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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