If you are thinking of buying a life insurance plan you must be aware that there are different types of plans available in the market. Different plans have different features and benefits. But if you want a plan that provides financial security to both you and your family in case of any untoward future event an endowment plan is the best option for you.
What is an endowment policy?
An Endowment plan is a traditional Life insurance plan. It provides the dual benefit of insurance and savings. It offers the lump sum assured (the death benefit) to the nominee if the policyholder dies before the completion of the term. If the policyholder survives till the maturity of the policy term, the lump sum assured (the survival/ maturity benefit) is paid to the policyholder.
Unlike term Insurance plans which offer no sum assured on survival or ULIPs which are risky investments due to their complete dependency on the performance of the market, endowment plans are risk-free investments that allow long-term savings and cover the risks of your life.
Endowment plans are of two types- participating and non-participating. Participating endowment plans are those that participate in the profits of the company. In other words, whatever profits the company makes, you receive a small amount of the profits as additional bonuses along with the sum assured. If it is a non-participating endowment plan, it simply means it is a without-profit plan. Being a traditional Life Insurance plan, an endowment Policy is generally non-ULIP.
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Who should buy an endowment policy?
If you are risk averse, have a fixed monthly income and do not mind settling for lesser returns offered by your life insurance plan, you should opt for an endowment plan. Endowment plans provide life coverage and at the same time offers maturity benefits that you may need for future emergencies, for your retirement or for your child’s higher education or marriage.
Term plans, however, are cheaper and offer more coverage, but they do not provide the option of savings. ULIPs, on the other hand, allow you to save and grow wealth for future, but the future returns depend solely upon market performances. So, if you do not want to take that risk, Endowment plans are the best option for you.
When should you buy an endowment policy?
Endowment plans not only ensure a financially secure future for your loved ones, but also allow to you save your money and build a large corpus over a long period of time. So, you can afford this type of a long-term investment only when you are sure that you can regularly pay your premiums for quite a long period of time.
If you are self employed or do not have a regular source of income you should better opt for a flexi pay or single pay plan. If you are only concerned about life coverage, you can just buy a term insurance plan. Endowment plans, as said earlier, are more expensive than term plans. So you must have a regular stream of income if you want to invest in an endowment plan.
Why should you buy an endowment Policy?
There are a number of reasons to buy endowment plans. The most important reasons are that it is a tax-saving instrument that allows you to save money in a disciplines way for your future financial needs. Moreover, it provides the lump sum assured whether you survive till the maturity of the policy or not. It is the best risk-free investment option for risk-averse middle class Indian.
The key benefits of an endowment plans are summarized and listed below:
- It provides financial protection to those who are financially dependent on you.
- It allows goal-based savings.
- It allows you to take loan against the policy.
- It makes you eligible for the tax benefits under 80C and 10(10D) of the Income Tax Act.
How to buy an Endowment policy?
There are different types of endowment plans available in the market. Before buying, you should choose the right plan that suits all your requirements. Choosing the right plan is necessary so that you do not have to regret in the long run.
Choosing the right life insurance plan depends on various factors including your current personal and financial circumstances, future goals, risk appetite and so on. However, the following steps may help you choose the right endowment plan for you:
- Premium rate: Check out various endowment plans and compare the premium rates.
- Bonus rate: Always check the track record, of the company, with respect to bonus payment. This will also help you understand the relative value of the plan by translating the bonus rate into simple Return of Investment or ROI.
- Claim Settlement ratio: It is must check the latest claim settlement ratio of the company before buying any life insurance plan.
- Others: You should also check the customer service as well as the financial standing of the life insurance company.
After you have completed the steps mentioned above you will be able to shortlist a few endowment plans that you think are reliable and best suit your requirements. Now it is time to check the features and benefits of the shortlisted plans. Go through the product brochures thoroughly and choose the plan that looks simple and easy to understand. If you do not understand the structures of the plan very well, there may be some clever catch in the fine print. Those plans should better be eliminated as early as possible.
Insurance companies also offer online life insurance plans these days. So, you can opt for buying an online endowment plan as online purchase is safe, hassle-free, and also saves a lot of money.