What Is An Endowment Plan And When Should You Purchase It?
Updated On Aug 23, 2021
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An Endowment plan is a life insurance policy that offers life insurance as well as the ability to invest consistently over a certain length of time in order to earn a lump-sum payment when the policy matures. Following that, one can use the maturity benefit to meet various financial needs such as supporting their children's schooling, saving for retirement, purchasing a home, and children's education.
The plan not only offers a maturity benefit, but also ensures that the policy's beneficiary receives the full sum assured amount in the event of an unforeseen catastrophe. As a result, an endowment plan can be defined as an insurance plan that allows you to save while also providing a lump-sum maturity benefit.
Things To Consider Before Buying An Endowment Plan
Here are a few things to consider regarding the Endowment plan before purchasing it.
1. Your Requirement For Life Insurance Coverage
You must first determine the amount of life insurance coverage you require before deciding on an endowment plan. The coverage should ideally be at least 20 times your annual income. For example, if your annual income is ten lakh rupees, you should purchase a plan with a cover of two crores rupees.
The amount of life insurance you need is determined by a number of factors, particularly your financial goals (both short and long-term), liabilities, and dependents. This online calculator can help you figure out how much life insurance you need.
2. Premium To Be Paid
Unlike pure term plans, endowment plans charge a greater premium for the same amount of life insurance coverage. This is due to the fact that the insurer spends a portion of the premium in safe ways to build wealth. As a result, it's critical to understand the premium you'll need to pay in order to reap the benefits of your endowment insurance before making a purchase.
Because the premium is higher, it should be compatible with your present income and expenses. Before making a decision, you can compare endowment plan premiums online.
3. Premium Payment Term
Premium Payment Term (PPT) refers to the time intervals at which the life assured is required to pay the premium to keep the endowment policy active. Insurance companies offer a wide range of premium payment terms options including one-time payment, or premium payment on yearly, half-yearly, quarterly, or monthly basis. Choose the premium payment term which is most suitable for you.
4. Claims Settlement Ratio
If a claim is denied, the purpose of life insurance is nullified. As a result, before purchasing an endowment policy, it is critical to evaluate your insurer's claims settlement ratio. The claims settlement ratio is the proportion of claims settled by the insurer out of the total claims received by it in a financial year. In the fiscal year 2019-2020, Max Life Insurance settled 99.22% of its claims.
Endowment plans are one of the most reliable financial strategies for protecting your descendants from life's uncertainties and achieving your financial goals since they combine protection and savings to develop a corpus. When purchasing an endowment plan, keep the aforementioned considerations in mind to ensure you acquire the greatest coverage for your needs.
Endowment plans can assist in the development of a sufficient corpus through disciplined savings. As a result, these can assist you in achieving your long-term financial objectives. You may want to buy a home, invest for your child's education, or plan for your retirement; endowment plans can help you achieve any of these goals.
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.