Know Why an Endowment Plan is a Great Idea?

Updated On Aug 07, 2021

Advantages of an Endowment Plan
At the End

An endowment plan is a type of life insurance that offers dual benefits I.e. both an insurance cover as well as investment. On the maturity of the insurance plan, the policyholder receives the sum assured and during any unforeseen event of the death of a policyholder, the family members of the policyholder get death benefits. An endowment plan pays the amount in lump sum either after the demise of the policyholder or after a particular term, as the condition may be. By paying premiums on a regular basis for a specific term, not only would the assured get the sum assured but they would also be entitled to receive bonus and other applicable additions during the policy term. This insurance plan, thus, offers coverage to the life of the insured, encourages disciplined and regular savings, and finally pays a lump sum amount towards the end of the policy duration, irrespective of the case.

Advantages of an Endowment Plan

Before you decide to go for an endowment plan, it is necessary to understand the different types of benefits that it has to offer. Highlighted below are the key advantages of an Endowment plan:

Offers Life Coverage

Life is an unpredictable journey. In the event of the unfortunate demise of the policyholder who was the sole bread earner of the family, his loved ones may have to deal with financial burdens. However, buying an endowment plan helps the policyholder in securing their family members financially even in their absence. This lump sum amount would act as an income replacement in case the policyholder is the sole bread earner of the family.

Offers Bonus

An endowment plan offers a yearly bonus to the policyholder. This sum is given to the policyholder as percent of sum assured. In the event of the demise of the policyholder during the policy tenure, the nominee is assigned by the policyholder to get the sum assured alongside the total accumulated bonus. On the other hand, upon survival, the policyholder may get both additional bonus and sum assured during the tenure of the plan.

Provides Tax Benefits

One of the top reasons to invest in an endowment plan would be to decrease your tax liability. The policyholder might enjoy the premiums paid for the insurance plan as per section 80C of the Income Tax Act. Moreover, the sum received towards death benefit is also tax exempted as per section 10D.

Encourages Disciplined Savings

Premiums paid towards the endowment plan either need to be paid on monthly, quarterly, half-yearly or yearly basis as per the terms and conditions mentioned in the policy document. It encourages you to make regular savings. You make payment of your premiums on time in order to ensure that you receive a lump sum amount during the maturity, which can be in turn used at the time of any financial emergency.

Helps in Meeting Various Life Goals

Upon the maturity of the term, an endowment plan provides the accumulated sum, you can use this amount to meet all your personal long term objectives. Moreover, keeping it secure as a financial safety net that can help you in meeting the expenses during the golden years of your life, it may include purchasing a new car, down payment for a new house or your child’s higher education expenses.

At the End

In case you wish to buy a plan that provides more than just a life insurance, an Endowment plan is the most viable option for you. It serves a triple purpose including offering insurance coverage, option for long term wealth creation and regular goal based savings, making these insurance policies the correct choice for the individuals belonging to any particular age group, regardless of their saving capabilities. Although an endowment plan may offer lower returns, they are comparatively much safer options and guarantees that an individual’s insurance and investment needs are well taken care of under a single insurance policy.