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What are the Advantages and Disadvantages of Endowment Plan?

Published On Oct 13, 2021 10:00 AM By InsuranceDekho

Endowment policies combine savings and life insurance with the added benefit of capital growth. Endowment policies give a death benefit to the beneficiary/nominee in the event of the life assured's untimely death within the coverage period. Certain endowment policies participate, i.e., share in the earnings of the insurance provider; as a result, some endowment policies provide the benefit of wealth appreciation. Endowment plans assist a person in ensuring their family's financial security in the face of life's uncertainties.

These types of life insurance policies also pay a maturity benefit to the life assured at the conclusion of the policy term if the life assured lives to the end of the policy term. Some endowment policies provide for asset appreciation, which includes a share of the insurance company's profits, as well as additional incentives (if any) in addition to the death and maturity benefits.

Advantages Of Endowment Policies

Some of the key advantages of buying an endowment policy are listed below:

1. Low Risk

Endowment policies are a low-risk investment option that is suited for persons who have a low-risk appetite. Endowment policies are not suitable for high-risk markets and give guaranteed returns dependent on the insurance provider's performance. Endowment plans are not linked, which means that your money is not invested in a variety of market-connected investment vehicles.

2. Maturity Benefit

If the life assured survives the whole coverage period, he or she will get a maturity benefit equal to the sum assured plus any additional bonus (if applicable). The life assured will be able to pursue his or her dreams or meet predetermined financial goals in this manner.

3. Financial Security

Endowment plans are a terrific method to protect yourself and your family financially from life's uncertainties, such as your untimely death within the coverage period. An endowment policy pays a death benefit to the beneficiary/nominee if the life guaranteed dies unexpectedly during the coverage period. This benefit of an endowment plan can help you provide financial security for your family and allow them to live well even if you are not around.

4. Wealth Appreciation

Most endowment policies provide for wealth appreciation because these plans share in the insurance provider's profits based on the market's performance. Most endowment plans pay yearly reversionary or terminal bonuses (if any) in addition to the death benefit or maturity benefit.

5. Additional Bonus On Endowment Policy

A company that provides coverage may offer a variety of bonuses. An assurer adds an amount of money to the revenues and delivers it to the client as a bonus. Only with-profit customers are entitled to a percentage of profits, and the bonus is based on the life assurer having excess funds after assertions, taxes, and expenditures have been paid for the year.

Disadvantage Of Endowment Plan

Below is the disadvantage of an endowment plan:

1. Weak Investment Returns

Endowment policies have only one disadvantage: weak investment returns. Although you may receive a significant maturity benefit at the conclusion of the policy term, the returns are not as high as market-linked investment products. However, the yearly bonus may or may not be declared at the conclusion of each policy year, as it is entirely dependent on the insurance provider's performance.

Conclusion

Endowment programs have grown in popularity among investors because of their dual benefits. These plans provide the policyholder with both savings and life insurance. Endowment policies have grown in popularity as a means of assisting the life assured in building a savings fund for the future.

Also read - Know What Are The General Exclusions Under An Endowment Policy

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.

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