An Endowment Plan and When Should You Go for it?

Endowment Plans

Endowment Plans

In simple terms, the endowment policy provides opportunity for the policy holder to combine life cover and savings in one plan. The plan provides life cover for the policy holder throughout the tenure and this is very inexpensive when compared to other plans available in the market. Apart from that, lump sum benefits will also be offered to the policy holder after the maturity of the plan. In this regard, let us take a detailed look into some of the amazing features of endowment plan and why you should choose it over other plans.

Does endowment plan suit your requirement?

This is the crucial question you should ask yourself when you want to buy this plan for your future. According to experts, this is the most suited plan for salaried individuals and other people who want to save money on a regular basis for the future. It provides regular stream of income in future and you can select the tenure as per your individual needs. The risk factor involved in this plan is very less when compared to other options and many people choose this plan for this reason.

Is this better than term insurance plan?

It is definitely an improvised form of term plan and you can even get to save money by choosing the endowment plan. The term plan focuses only on providing life cover and it does not offer any other benefits at the end of the plan. In this way, you will be spending money in that plan and it is an expense for the policy holder. In this context, the term insurance plan is not an investment plan whereas the endowment plan is also an investment plan that also provides life cover. However, the term plan also has some unique advantages in the sense that it is very easy to understand and there will be no confusions even for the beginners. On the other hand, endowment plans are sometimes tricky to understand and you will need the guidance of an insurance advisor to properly choose the right plan for your future. Things can get complicated when the plan is added with various riders to avail additional benefits. There are some endowment plans in the market that are market linked and this can be little difficult to understand if you are not familiar with the concept of insurance plans.

When should you go for endowment plans?

This is the best suited plan for individuals who want to save money on regular basis. Remember that you can choose the mode of premium payment as per your convenience and this provides flexibility for investors to handle their expenses in the proper manner. Many people do not have proper discipline with regards to handling their finances and they tend to spend money unnecessarily on many things. This trend has become common among youngsters and they do not have proper planning for future savings that can save them from lots of troubles in future. In this situation, having an endowment plan is the best choice as you can get to save money as well as get life cover without any problems.

You need to understand that investment comes with risk and you should be aware of the risk factor involved in any plan before you buy them from the market. The endowment plans are the best choice when you want to invest in safe options with very low risk factor. The returns you get from this plan may be slightly lower when compared to equities and mutual funds available in the financial market. But it offers guaranteed returns at the end of the plan and you will get lump sum money after the maturity is completed.

It is also a good option as it comes with tax benefits and this feature is not available with many other plans. For this reason, many salaried individuals prefer the endowment plan as they can get to save money on taxes without taking any risk and they will also be able to get guaranteed returns in future.

Not only that, the plan also offers life cover for the policy holder and this is the main objective of the plan. In this way, the sum assured will be paid to the nominee if the policy holder dies before the maturity of the plan. Unlike the term plan, the individual also gets back the entire amount of guaranteed sum assured if he survives till the maturity of the plan.

Factors to consider before choosing the endowment plan

  • There are many companies offering endowment plans and you have to carefully understand the features of the plan before you purchase them.
  • It is always a good idea to consult a professional insurance advisor to get clarity about the plans as this will help you to avoid any mistakes in future.
  • You should typically choose the policy after assessing your risk appetite and your current earnings.
  • Remember that endowment policies are slightly expensive when compared to the term insurance plans and you have to pay higher premium to get life cover from this plan.
  • You should ensure that you will not have any problems with paying the premium amount as not paying them on time can lead to a situation where the policy will become invalid.
  • Yet another point you have to note is that different companies have different rates for the same sum assured and you should make it a point to compare them before choosing the suitable option.
  • Other than that, you should also consider the bonus issued by the plans and make a proper comparison between different plans from various service providers.
  • One of the primary objectives of buying the endowment plan is to secure your family in the event of any unfortunate event and you should be very particular about the claim settlement ratio of the company.
  • Note that many companies do not have a good track record with regards to claim settlements and you should strictly avoid such companies even if they are offering attractive rates for these plans.
  • Always stay with reputed companies that can provide guaranteed returns and have good claim settlement track record in the past years.
  • You can also get in touch with the customer care team of the service providers and enquire about any doubts you may have with regards to the endowment plan.
  • This can give you a fair idea about their services and you can choose the appropriate company to make your investment in the endowment plan.

Is it the best replacement for a term insurance plan?

The simple answer is NO. While the endowment plan can give you guaranteed returns along with life cover, it is not a good option to solely depend on this for your insurance needs. Remember that the endowment plan is more of an investment plan and the insurance cover you get from this should be considered as an add-on product. When you want to secure your family by taking appropriate life cover, your first choice should always be the term insurance plan. This offers simple life cover without any problems and even the premium amount required for this plan is very less when compared to the endowment plan. However, you can consider investing your savings in the endowment plan as the term plan cannot give you any benefits for your future.

Bonus option with endowment plan

You will get many benefits when you choose the endowment plan and getting annual bonus is one of them. The company declares bonus every year depending on various factors and investors will get to enjoy the bonus at the end of the maturity period. In other cases, the bonus will be given to the policy holders after a specific duration and this can give them good monetary support at the right time in future. You can plan the tenure in such a way that it gives you lump sum benefits at a later stage when you need money for the education and other expenses of your children. Note that the bonus is declared annually and it may not be given every year to the policy holders. You need to get in touch with the service providers to get complete clarity about the bonus options available with your endowment plan.

When you notice all these features of the endowment plan, you will realize that getting the best cover and guaranteed returns in one platform will benefit you in many ways. You can also consider this plan as a tax saving option and this is a good strategy for many salaried individuals. They can easily get to save money on a monthly or quarterly basis and enjoy various tax benefits at the end of the year. The tax benefits are available till a certain limit of the premium amount paid for the policy. You can approach a professional insurance advisor and explain your requirements in a detailed manner. They will be able to guide you and explain the different plans in the best possible way. In this way, you will be able to get the best policy for your future.

About Archana 31 Articles
Archana is an independent finance and investment advisor since 4 years and recently added with Investment Pedia. User are welcome to put questions on her contributions.

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