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Pros and Cons of Buying Endowment Plans

Updated On Nov 08, 2021

Endowment programs are obtained for just a specified period of time and provide both life and mortality payments to the policyholder. After the maturity time has passed, the policyholder retains ownership of the guaranteed amount, including any earned incentives (if any). If this isn't the case, the money is distributed to the plan's beneficiaries. Investors have several options when purchasing an endowment plan. We've created a real-life example of an endowment plan in this post to help you decide whether or not to purchase one.

Financial and income protection are combined in an endowment policy. This nominee receives an amount assured in the event of the life assured's untimely death. This plan also contains a maturity benefit, which means that if the life assured lives to the conclusion of the policy term, he or she will get a maturity benefit at the end of the policy term. Endowment plans, like other participating plans, offer guaranteed additions in the form of a yearly bonus announced on the policy during the policy term. Endowment funds are a great way to ensure a consistent income source. 

Pros Of Buying Endowment Plans

The following are some of the advantages of purchasing endowment plans:

1. Low-Risk Plans

For those with a limited tolerance for risk, endowment packages are offered as small investments. It expands the strategy by allowing those who aren't interested in the stock market's pleasures to participate.

2. Planned Savings

Endowment plans, also known as planned savings plans, are popular with shareholders since they offer a double advantage. To build a future savings account, endowment programs are widely used. Premiums are remitted on a regular basis, encouraging long-term savings.

3. The Advantages Of Maturity And Death

If the policyholder lives to see the end of the term, he or she will be guaranteed the amount pledged, plus any earned incentives. The nominated beneficiaries receive the cash assured plus incentives if the life assured is lost ( if any). As a consequence, endowment funds offer both life and death benefits to investors.

4. Guaranteed And Non-Guaranteed Returns

When you invest in endowment schemes, your money is pooled with that of others to form a single fund called a participating fund. When the policy's term expires, you'll be paid an amount in both guaranteed and non-guaranteed forms. You will receive the guaranteed amount regardless of the fund's performance, but the amount you receive as part of the non-guaranteed format will be determined by the performance of the participating fund.

Cons Of Buying Endowment Plans

Some of the disadvantages of buying endowment plans are listed below:

1. Market-Linked Plans Produce Lower Returns

While receiving a large sum of money at the conclusion of the maturity term may appear to be a benefit, the return is quite low. Premium increases do not provide comparable long-term profits to other assets.

Please remember, though, that the real amount paid will be based on the insurer's fund performance.

2. The Values Of Cash Surrender

Paid-up prices are frequently lower than insurance premiums in the initial few years of the policy, and a policyholder may not be able to retrieve all premiums paid if the insurance is surrendered.

3. Making A Life Insurance Purchase

It can be tough to decide whether or not to include insurance coverage and how to place it, particularly if the coverage is for wealth management, business issues, or complicated family situations.

4. Insurance Premiums

Insurance companies must give up some of their expenditures in order to pay reinsurance. Life insurance is frequently purchased on behalf of others, with the assured individual serving as an additional beneficiary.

Conclusion

Endowment plans are an excellent approach to secure predictable returns. Investors who purchase an endowment plan gain access to a range of benefits and features. It all comes down to the investor's preference. This article's content will aid you in making an informed decision.

Also read - Why You Must Select an Endowmnet plan for Your Retirement?

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