Meaning Of Endowment Plan: Why Is It A Good Investment?
Updated On Aug 19, 2022
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When considering a life insurance investment, an endowment policy is a very wise choice to make. It is a policy that combines life insurance and a savings plan by providing you with both the critical life insurance coverage you require and the advantage of long-term savings after a set period of time. With an endowment plan, you may save and grow your money while also providing a life insurance policy for your family, giving you the perfect combination.
What is an Endowment plan?
It is a specific kind of life insurance plan made to pay out a single sum of money upon maturity or in the event of death. A risk-free savings fund can be created through the use of an endowment plan, which also offers financial security for the family in the event of an unlucky circumstance. Due to its ease of use, everyone finds the endowment plan to be an appealing savings option.
Additionally, a strong endowment policy gives someone the assurance they will be able to handle any future financial requirements or emergencies. It offers returns that can assist you in saving for things like a child's wedding and school, as well as meeting your own wants and aspirations and those of your loved ones.
Why Should One Buy An Endowment Plan?
An endowment plan might be purchased for a variety of reasons. It can assist someone in creating a financial pool using merely regular savings. The money that will be received when the policy matures can be put toward both short- and long-term financial objectives, such as the purchase of a car, funding a child's education, and post-retirement goals. Through the built-in life insurance, it also provides financial support to the family in the event of an unexpected event.
Features of an Endowment Policy
Following are some of the key features of endowment plans -
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Two Benefits In One Policy
The policy provides dual benefits of savings and life cover. Also, the return is tax-free so real returns are higher.
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Bonus
The plan offers additional bonuses. These bonuses are the extra amount of money that policyholders can get.
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Zero Market Risk
These policies are not linked with the market. Since these policies are not market-oriented everything that happens with the market doesn't affect the policy at all.
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Guaranteed Savings
In an endowment policy, the policyholder gets fixed returns. So, the financial goals and financial future are always in safe hands.
Who Should Buy These Policies?
- Endowment policies are suitable for anyone from someone who just started their job to someone who's about to see their retirement soon. Most have family responsibilities that need to be taken care of. Also, most people have long-term non-negotiable goals that need to be achieved no matter what.
- If a person is looking for low risk with two in one benefit of insurance and investment. Then in that case one can go for an endowment policy.
- If a person is looking for a lump sum at maturity for long-term goals then an endowment policy can be best for them to opt for.
- Also, if a person wants to save a small amount of money from their salary for a long period of time and also wants to get some tax benefits then in that case also endowment policy can come handy. Also, if a person wants zero risk in an investment, then also they can consider opting for an endowment plan.
Why Is It A Good Investment?
Following are some of the reasons which make endowment plans a good investment -
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Life Cover
In case of an unfortunate event of the death of the policyholder, the family may come under financial problems. So, in that case, the endowment plans pay the sum assured to the loved ones. This amount acts as an income replacement if the policyholder was the sole earner of the family.
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Disciplines Route For Savings
The premium in the plan is to be paid monthly/quarterly/half-yearly/yearly, according to the terms and conditions of the policy. So, this develops a habit of regular savings in a person. Because at the end the person gets the lumpsum amount which can be used in case of any financial emergency.
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Tax Benefits
This can be one of the best reasons to invest in endowment plans to reduce your tax liability. The policyholder can enjoy tax benefits on the premium paid towards their policy. Under Section 80C of the Income Tax Act 1961. Besides this, the amount is also exempt from tax under Section 10D.
Conclusion
Endowment plans are a useful tool for investing. These plans are advantageous because they provide strong returns over an extended period of time and are long-term. One of the key benefits of an endowment plan is that it provides an opportunity to invest money in a disciplined and well-organised method to fulfil financial requirements. Therefore, endowment policies make good investment opportunities for long-term planning.
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