Planning To Purchase An Endowment Policy? Here Are Some Tips To Help You Choose A Correct One!
Updated On Nov 30, 2021
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An endowment plan combines investment and an insurance plan to help you save for the future. In contrast to a term insurance plan, which only provides a death benefit, an endowment plan provides both maturity and a death benefit to the policyholder. This essentially means that the individual is entitled not only to a sum assured upon maturity but also to a death benefit in the event of the individual's unfortunate demise. Let's look at how an endowment policy can help you reach financial goals while also protecting you and your family from unforeseen events.
- Endowment plans include a predetermined maturity benefit. This basically means that at the end of the policy tenure, you are entitled to the entire corpus that you have painstakingly and patiently built up.
- In the event of a calamitous incident that results in your untimely death, the sum assured will be paid to your family, if you have designated them in the policy document. Furthermore, in some endowment plans, you may withdraw money (up to a certain limit) from the corpus of your endowment policy in the event of a financial emergency.
Tips To Choose The Correct Endowment Plan
Below are a few tips for you if you choose to buy an Endowment plan:
Certain endowment plans, such as a participating plan, declare a bonus each year, which is typically distributed as a percentage of the sum assured. This basically means that if you survive the entire policy term, you will be entitled to any additional bonuses that have accrued during the policy's tenure in addition to the sum assured. Furthermore, if something untoward were to happen to you, your nominated beneficiaries would still be eligible to receive the full sum assured as well as any accrued bonuses.
If you are a risk-averse investor, endowment plans can often help you meet your long-term financial security needs with little or no risk exposure. This basically means that if you want to stay invested but are hesitant to invest in the stock market due to the various risks involved, you can opt for a guaranteed endowment plan instead. You will be able to maintain a safer, more disciplined path for saving, thereby cultivating a savings habit.
Endowment policies can also be used to save money on taxes. Section 80C of the Income Tax Act of 1961 allows you to deduct paid premiums from your taxable income. Additionally, any lump-sum proceeds received as a death benefit are deductible under Section 10 (10D).
Where Can I Get An Endowment Policy?
If you decide that an endowment policy is right for you, you can usually purchase one from a financial advisor or an insurance company. Before purchasing an endowment policy, always obtain a 'Key Features' document from the provider. This will outline the policy's benefits and drawbacks and will assist you in making an informed decision. Endowment policies are not suitable for everyone, so seek financial advice before purchasing one.
An endowment mortgage is a type of interest-only loan. It is a hybrid of an investment and an insurance policy. Rather than repaying the lump sum, you pay interest on it.
An endowment mortgage includes an additional savings product – the endowment policy. This means that your monthly payments include both the interest on your mortgage loan and the endowment premium. The endowment product also includes life insurance, which will repay the loan in the event of your death.
Surrender The Endowment
You may be able to cancel your policy before it expires and receive a payout from your provider. This payout will be significantly lower than if you let the policy mature.
You pay a set monthly amount for a set term and receive a cash lump sum at the end of the policy. What distinguishes this policy is that a portion of your monthly payments goes toward a life insurance policy. This means that if you die before the endowment policy expires, the insurance company will pay out to your designated beneficiary.
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.