What Is An Endowment Policy, and How Does It Work? What Are The Most Important Advantages Of Endowment Policy?
Updated On Jun 29, 2022
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An endowment policy is a form of life insurance that also offers an avenue for reliable savings over the duration of the policy. When a policyholder buys and pays the premium for an endowment policy, a portion of the fund goes towards the life insurance premium and the other half is allocated as savings. An endowment plan is an excellent way to save money regularly over a period of time while also getting life insurance coverage.
The main benefit of an endowment insurance policy is that if the policyholder survives the duration of the policy period, the full amount of money invested in the policy is returned to the insured in the form of maturity benefits along with any bonus if applicable. In case of the untimely death of the policyholder while the endowment plan is still active, the sum assured is provided to the beneficiary in the form of death benefit along with any bonus if applicable.
How Does an Endowment Policy Work?
An endowment policy is a simple product. The policyholder has to opt for a policy period, such as 10 years, 15 years, etc. and has to finalise an annual premium. The policy provides life insurance cover for the agreed tenor and guarantees a lump-sum payment at the end of the term. The lump-sum payment can be used to meet your financial goals. Like you have read above, some endowment plans also add amounts known as bonuses at regular intervals, which boost the final returns from the plan.
Benefits of an Endowment Policy
Tax Benefits:
Investing in an endowment plan provides a host of tax benefits. The premiums paid are eligible for tax deduction under Section 80C of the Income Tax Act, while the payout is tax-exempt under Section 10(10D) of the law.
Guaranteed Savings:
Choosing an endowment plan ensures that your savings remain secure as investments and are returned to you after the policy period ends.
Bonus:
Many endowment plans also have a provision for bonuses where the insurance company adds bonuses to the policyholder’s investment, thereby providing a higher return.
Dual Benefit:
An endowment policy is a unique plan in the sense that it fulfils two purposes- provides life insurance cover and serves as a tool for savings/investments.
Low Risk:
The returns from an endowment plan are guaranteed and the risk is minimal. A majority of endowment plans are not market-linked and are hence unaffected by market fluctuations.
Conclusion
Now that you know an endowment insurance policy offers financial security to your loved ones, tax exemption to you, and a goal-based savings option, head over to the bank from where you wish to purchase and purchase it now.
Also read: Are You Thinking About Purchasing An Endowment Plan? Here Are Some Things To Think About
