Planning To Buy An Endowment Policy? Here's What You Need To Know About It

An endowment plan is a life jacket for folks who have a hard time conserving money for a rainy day or who frequently acquire stuff they don't actually need. An endowment plan is a type of life insurance policy that works like a savings account, paying out a lump sum of money when the policy matures or when the policyholder dies. It's essentially a combination of an investment and an insurance policy. An endowment plan protects the insured person's life while also allowing the policyholder to save regularly over the course of the policy's term. A policyholder can cash in an endowment plan before the policy's fixed date and receive an amount that has been deferred.

Reasons How Endowment Plans Are Useful For Retirement Planning

Here are some things to consider if you're considering purchasing an endowment policy:

• Riders

Riders are optional coverages that can be added to existing insurance. They can provide additional coverage in the event of a critical disease diagnosis, accidents, or income benefits in the event of the life assured's death, among other things. These riders are available for an additional premium cost. A rider is sometimes included as a standard element in plans.

• Low Risk

When compared to Mutual Funds or ULIPs, where the fund value is modified daily based on the market results of the underlying investments, traditional endowment policies have a lower volatility risk. The investment return is distributed annually through bonuses in Participating Endowment plans. The extra returns are locked in once they've been disclosed, and they can't be taken away. A predetermined guaranteed sum, as well as bonus allocations, are included in death benefits. Non-participating plans provide you with full maturity and death benefits from the start.

• Tax Benefits

Endowment plans are eligible for an income tax exemption under Section 80C if the life insurance provided is equal to or greater than 10 times the annual premium paid. Under Section 10(10 D) of the Income Tax Act of 1961, these policies would be eligible for tax-free returns on maturity.

It's worth noting that when used for long-term savings, endowment plans offer the best returns and security. In most situations, the plans demand that a premium be paid on a regular basis over a number of years. Customers who choose these plans must demonstrate their ability to pay premiums over time in order to avoid the policy lapse.

• Encourages Savings Targeted

Endowment plans are often used to build a future savings pool. Premiums are placed at regular periods to encourage long-term saving practices. As a result of this feature, it is an excellent choice for retirement planning. Over time, the funds you've saved will come in handy when you're older. It will serve as a safety net for when you retire and later in life.

• Maturity Benefits

These policies release the sum assured to the life assured upon policy maturity, even if the policyholder survives the plan period, to provide financial security during retirement. The premiums paid are protected from market risk, ensuring the policyholder of assured returns.

Conclusion

Endowment policies are all-around in the life insurance sector. They provide both financial security and the ability to accumulate and expand wealth. Get an endowment plan if you want a policy that provides life insurance, a maturity benefit, and a tax advantage all in one. To have a joyful and stress-free retirement, it is vital to invest in financial tools early in your career.

Also read: 

Endowment Plan - Features and Benefits

Endowment Insurance V/S Whole Life Insurance

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.