Endowment Policy
Updated On Nov 24, 2023
Table of Contents
The struggle to reduce might be a result of tendency to overspend, which is when one spends more than one can comfortably afford. Spending too much money might make it impossible to reach one’s financial objectives. An endowment plan is the right choice if one struggles to live a disciplined life. A life insurance cover known as an endowment plan is designed to pay out a lump sum of money upon maturity or upon death. Such programmes combine insurance coverage with savings plans, serving a dual function.
If necessary, endowment insurance will even cover serious sickness, and some of them will cover the person for a certain amount of time. As a result, the insured has the choice to become covered as long as they so want.
Meaning Of An Endowment Policy
The provisions of endowment plans help the insured save consistently over a certain length of time in order to get a lump sum at maturity since they are similar to life insurance policies in that they provide the benefits of both insurance coverage and savings. The maturity amount is paid if the insured lives through the whole policy term. Unfortunately, the sum guaranteed as a death benefit as well as a bonus will be paid to the policy beneficiary if the insured passes away while the endowment policy is still in effect. The ability to create a financial buffer for the future so that you may achieve your short- and long-term financial goals is yet another benefit of endowment insurance.
To address long-term financial needs, small company owners, salaried workers, and professionals like attorneys and physicians should generally look into endowment insurance. Endowment plans guarantee the financial stability of the policyholder and their family in the event of a tragic circumstance.
Need for an Endowment Plan in 2023
There are various benefits of choosing the endowment policy. Some of these benefits are:
1. Premium Flexibility
The ability to pay your premium over a short period of time and benefit from the policy's advantages over a longer period of time is a significant feature of endowment plans. A free paid-up insurance for a smaller sum insured can be obtained if premium payments end after a specific minimum number of years' worth of premiums have been paid.
2. Planned Savings
Savings that are regulated are encouraged by the need that policyholders set aside a certain sum for the premium payment at a specified time.
3. Double Tax Benefits
Endowment plans provide tax advantages under Sections 80C and 10D of the Income Tax Act for the yearly premium and death benefit, respectively.
4. Dual Benefits
Endowment plans provide the benefits of both long-term investments and insurance. Endowment plans pay a lump sum maturity amount if the policyholder survives the policy tenure in addition to paying the sum assured to the beneficiary in case of the policyholder's death.
5. Riders
Insurance firms provide customers with extra perks and riders like marriage/education endowment plans and double endowment plans. By paying a small price, policyholders of an endowment plan can also add extra riders for significant surgical help, catastrophic diseases, etc.
6. Loans
Policyholders may borrow money against an endowment policy whenever they need to, often without putting up any security.
7. Liquidity
The basis of endowment policies is one of liquidity.
8. Safety
Endowment plans are risk-free in terms of the amount secured, despite the fact that their returns could be lower.
9. Returns
One of the main benefits of endowment plans is that they provide returns that compound over the course of the policy term.
Types Of An Endowment Policy
Let's examine the several different endowment policy varieties that are offered in the industry:
1. Unit-Linked Endowment Plan
This is suited for those who can handle high levels of risk and want to earn more from their money. This fixed-term saving plan offers life insurance, and the insured's premium payments are divided into numerous units held under the investment fund of their choosing. The success of the market for the fund determines all investment returns. Additionally, it offers the insured person's life coverage.
2. Guaranteed Endowment Plan
Endowment insurance plans ensure that a certain amount of money will be given to the insured or its beneficiaries, regardless of whether the insured lives to see the insurance policy's maturity or passes away before it does.
3. Full/With Profit Endowment Plan
The basic sum guaranteed, which in this form of plan is equivalent to the death benefit, is paid to the insured. This sum is guaranteed from the outset of the policy, and the final payout given to the insured is comparatively higher. Because it comprises both the whole sum promised amount and an extra bonus, this is the case.
4. Low-Cost Endowment Plan
The low-cost endowment plans were created to assist the insured individual in setting aside money for payments that will be due in the future after a specific time period. These affordable endowment plans are typically used to pay back loans, mortgages, and other debts. The beneficiary is given the minimal sum promised in the event of the insured person's death.
5. Non-Profit Endowment Plan
In a standard non-profit endowment policy, the sum insured is paid either as a maturity benefit to the policyholder or as a death benefit to the benefactor of the plan.
Conclusion
Endowment plans provide a structured way for people to accumulate capital that can subsequently help the insured's dependents in case of financial emergencies. Endowment plans should be purchased by salaried people, small company owners, and professionals like attorneys and physicians in order to achieve their long-term financial objectives.
Additionally, these plans are the best choices for individuals who are risk-averse and don't mind getting lower returns.
