We work hard for securing our future from any possible financial shocks. Some of us choose to put our money in the best saving plans, while others may use a savings account. People may also choose a variety of investment portfolio to boost their wealth management. Although it is important that we save money for rainy days, it is equally important to choose where exactly and how we want to invest our money.
As we tend to age, we understand the value of buying a life insurance too. But then you consider whether you can afford the premiums? Buying a life insurance, servicing debts, lifestyle and regular expenses, and on top of that, you feel the pressure to save money. What if you get a life insurance cover along with a saving avenue? Well, that’s a win-win! If you are looking for a dual benefit policy that offers not only life insurance but also helps you grow your savings, an endowment plan is the one for you. You can save on a regular basis over a time period and if you survive policy maturity, you receive the entire corpus as a lump sum.
Don’t worry! If something happens to you, your nominees or beneficiaries will receive the Sum Assured along with bonus, if any. Here’s everything you want to know about an endowment policy.
What is an Endowment Policy?
In simple words, an endowment policy offers life cover along with the benefits of a savings plan. You can save regularly over a specific period to accumulate a significant corpus that you can enjoy at maturity. If the policyholder survives the policy term, they will get the Sum Assured in a lump sum. An endowment policy is a good option to help you meet financial goals such as the education of your children or their marriage, purchasing a house or even planning your retirement.
What are the Different Types of Endowment Plans?
Although endowment plans are considered to be one of the best financial tools that can help you achieve your milestones, it is necessary that you consider the different types of endowment plans before buying.
Listed below are 5 different types of endowment plans that you can choose from as per your financial requirement and circumstances:
1. Unit Linked Endowment Plan
In unit linked endowment plans, the premium that you pay is divided into 2 parts. One part is used to purchase units in different investment funds as per your preference and the other part goes toward your life insurance cover. This is often termed as Unit Linked Insurance Policy – one of the best saving plans that investors usually put their money in.
2. Guaranteed Endowment Plan
As the name suggests, under this plan, the policyholder receives guaranteed benefits. At maturity, the policyholder gets the Sum Assured along with Loyalty Additions, if any. Apart from that, with Guaranteed Savings Plan, if the policyholder survives the term, they will receive:
- Guaranteed Sum Assured on Maturity, plus
- Guaranteed Yearly Additions, plus
- Guaranteed Loyalty Addition
Learn more about Guaranteed Savings Plan.
3. Full/With Profit Endowment Plan
The policyholder receives the Sum Assured as promised at the time of buying the policy. However, depending on whether or not the company declares a bonus, the final payout including the surplus amount may be higher upon policy maturity or death of the insured.
4. Low-cost Endowment Plan
Under such plan, the life insured is allowed to accumulate funds, which is usually paid after a determined period. This plan is specially designed to help the policyholders to build a corpus to secure their future or to help them pay off their loans and mortgages. Even if the policyholder passes away when the policy is in force, the nominees or beneficiaries will receive the Sum Assured.
5. Non-profit Endowment Plan
Such endowment plans offer guaranteed additions instead of bonuses since they do not participate in the profits of the life insurance company. This helps generate returns for the policyholder and also make them attractive as compared to other plans in the market.
What are the Features and Benefits of an Endowment Plan?
It is now clear that an endowment plan allows you to save for various goals of life. Buying a money back plan or endowment plan makes it easier for you to achieve your financial goals while protecting your loved ones.
1. Higher Return on Investment
An endowment plan provides financial security by helping you create wealth in the long term to meet the financial goals of your family. The benefits payable to the insured upon survival and the nominees upon death are higher as compared to a pure life insurance policy.
2. Premium Payment
The insured has the choice to pay the life insurance premium on a monthly, quarterly, half-yearly or annual basis. The frequency of premium payment is decided as per your preference. However, ensure that you pay the premium on time.
3. Flexibility to Choose Cover
You can choose from additional coverage to protect you against critical/terminal illness, partial or permanent disability due to an accident and accidental death among others. Some plans also waive premium in the event of the insured suffering from either of these conditions.
4. Benefits on Both Survival and Death
Not only does the insured get the sum assured upon survival of policy period, his or her nominee also receives sum assured along with the declared bonus if any in the event of the death of the policyholder.
5. Tax Exemption
Tax on the premium paid can be saved as per provisions of Section 80C, while the maturity amount including final payout are also eligible for deduction as per Section 10(10D) of Income Tax Act.
6. Risk Factor
As compared to mutual funds, where the money is directly invested in stock markets and hence carries higher risk, traditional endowment plans help you grow your money with little or no risk.
What are the Riders Available in an Endowment Plan?
Riders always help you to enhance the in-built features and benefits of the plan. Remember that riders are optional, and hence, you need to include them in your plan if you want additional benefits. Riders may vary from plan to plan. However, we have listed below a few common riders that you may find with the endowment plans.
1. Premium Waiver
If something unfortunate happens to the policyholder such as they suffer from a lifestyle disease or they meet an accident, the life assured will not be liable to pay the remaining premiums. And the remaining premiums will be waived off by the insurance company.
2. Terminal/Critical Illness
The policyholder will get a lump sum amount in case they are diagnosed with a terminal illness. That amount can be used to pay off the hospital expenses and you will not have to dip into your savings when you witness such emergency.
3. Accidental Death Benefit
If the policyholder passes away due to an unfortunate event of accident, the insurance company will pay an additional death benefit along with the existing death benefit to the beneficiaries or nominees.
Who should Buy an Endowment Plan?
If you are the primary earning member of your family, then you must buy an endowment policy. In simpler terms, any individual who has a regular source of income and who has the responsibility of their loved ones should invest in an endowment plan. You can buy an endowment plan if you are:
- A salaried professional
- Self-employed individual
With the best endowment plan, you do not have to risk a lot to gain returns.
How to Buy the Best Endowment Plan in India?
While searching for an endowment plan, you must consider a few things to buy the best endowment plan available in India. You must keep in account your income, outgoings, any servicing or existing debts, current life stage and risk appetite. Also, the premium that you have to pay is another important factor that you must consider while looking for an endowment plan.
Check the claim settlement ratio of the insurance company before you make a decision to buy the plan as you must know the degree of ease and convenience of dealing with the insurance company. Ensure you read the term & conditions before signing on the dotted line to stay on the safer side.
4 Things to Keep in Mind before Buying an Endowment Plan
The most important thing to consider is the return on investment factor while choosing an endowment plan. However, there are a few things that cannot be overlooked:
1. Plan Early
The earlier you invest, the longer is your investment horizon and the higher are the returns that you reap over the long term. It also helps build the discipline of saving regularly over time to build a corpus for important milestones in life
2. Choose Riders as per your Needs
Riders are offered as inbuilt coverage by most insurers and you must use them to the fullest. Some companies might also offer a double endowment policy or education or marriage endowment plans.
3. Flexibility of Premium Payment
You can choose to pay a single one-time life insurance premium or limited premiums if your income is irregular whereas salaried professionals can go for a regular endowment policy.
4. Returns Offered
Many endowment policies offer both guaranteed and non-guaranteed returns. Guaranteed returns are declared upfront while purchasing the policy and are assured on policy maturity or death of insured. Non-guaranteed returns such as bonuses are variable in nature and are at the sole discretion of the insurance company.
Canara HSBC Oriental Bank of Commerce Life Insurance has a wide range of endowment plans that you may browse. From ULIPs, to endowment plans with Guaranteed Returns – you can choose a plan as per your risk appetite.
If you are still not sure, instead of opting for a traditional endowment policy, you can buy iSelect Star term insurance plan. Enjoy the return of premium benefit upon survival of policy period while staying protected for life or limited period of time as per your choice. Inbuilt coverage for accidental death, disability as well as child benefit among others offers additional protection. So, secure the financial future of your family by purchasing life insurance that suits your needs and helps your family achieve their financial goals and fulfill their dreams.