What Is An Endowment Policy? What Are Key Benefits Of An Endowment Policy?

Endowment insurance is packaged products that often have higher premiums since they include both investment and protection coverage.

A participating endowment policy's estimated bonuses are not guaranteed and are subject to change.

Non-participating policies only offer assured benefits and do not qualify for bonuses.

Make sure you're ready to commit to the policy's term. Losses may come from early termination.

If you borrow money against your cash value, you must repay it plus interest. Your money will have a harder time growing as a result of it.

What Is An Endowment Policy? What Are Key Benefits Of An Endowment Policy?

Below are a few things you must know about an Endowment plan and its benefits:

• Save Money On The Fees Of An Executor

Endowments have a lot of advantages when it comes to estate planning. When you die away, you can name a beneficiary to receive the proceeds of your endowment. Alternatively, you can name a new owner for your endowment product. In certain cases, neither your beneficiaries nor the new endowment plan holder will be forced to pay the executor's fees, which can save you up to 3.5 percent (excluding VAT).

• Insolvency Protection Is Available

Your endowment fund's whole fund value is safeguarded against creditors after three years. If the proceeds are payable to your spouse, children, or parents, the same applies for five years after the endowment has been ended.

• Encourage A Systematic Approach To Save

You are only allowed one withdrawal and one loan throughout the five-year minimum investment term. Termination fees may apply if you cancel your insurance before it reaches its maturity date. This restricted access has a good effect in that it fosters disciplined saving, allowing you to stick to your savings goals throughout the medium to long term.

• As Your Insurance Matures, You'll Have More Flexibility

You'll have a tax-efficient and adaptable product once your endowment reaches maturity. You have complete access to your endowment from that moment forward. This means you can make regular withdrawals to boost your retirement income, ad hoc withdrawals as needed, or a lump sum withdrawal to satisfy another life or retirement objective.

• Boost Your Tax-Savings Potential

With an endowment, the life insurance company pays 30% of your income tax on your behalf. If your marginal tax rate is higher than 30% and you've used all of your tax exemptions or maxed out your contributions to a tax-free savings account, this could be a tax-efficient alternative for you. In addition, when your endowment matures, the proceeds are tax-free in your hands.

Eligibility

Endowment insurance can be purchased for minors (future plans for children), with a minimum entry age of 5 years and a maximum entry age of 60 years.

In the case of minors, the policy must be under the supervision of a responsible adult, such as parents or guardians.

Exclusions

Benefits may not be paid in certain circumstances, such as if the insured commits suicide during the first 12 months. In such circumstances, the beneficiaries may be able to recover around 80% of the premiums paid.

Tax Benefits

The Indian government provides two types of tax breaks for endowment plans:

• A tax refund of 30%
• You will receive tax-free money if you die of natural causes.

Conclusion

Endowment products are sometimes mislabeled as fixed deposits. When a portion of your payments are used to pay for insurance coverage or when you surrender the policy early, you may not get back everything you paid in.

If you don't need insurance coverage, think twice about buying an endowment program to grow your funds.

Compare the product's returns, features, and risks against those of other investment options available.

Also read: 

Here's What You Need To Keep In Mind Before Buying Endowment Policy

Types of 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.