For many millennials, maximising their resources is key, especially when investing their hard-earned money. An endowment plan emerges as a versatile solution, which allows them to consolidate multiple financial goals under one product. Due to the benefits that come along with endowment plans, their appeal extends beyond millennials, attracting traditional investors and newcomers alike.
The blend of savings and insurance in endowment plans provides financial growth and security, making it a popular choice for various investor profiles seeking a balanced approach to wealth management. Read on as we understand endowment plans in a little more detail.
About Endowment Plans
Endowment plans are a type of life insurance that offers both savings and life coverage. If the insured dies within the policy’s term, the nominee is entitled to the sum assured, aka the death benefit. However, if the insured survives the policy period, he/she receives the maturity benefit. This comprises the sum insured along with additional bonuses and benefits earned throughout the policy term.
Endowment is a broad term. Generally, any plan that provides a maturity benefit along with a death benefit can be defined as an endowment plan. Briefly put, there are several types of endowment plans, such as:
What Makes Endowment Plans a Safe Investment with Guaranteed Returns?
The best part of endowment plans is they can be part of any investment portfolio. Listed below are 5 major features that state why it can be a safe investment.
Endowment plans provide a financial shield to the family of the insured in case the insured individual faces an unfortunate incident. However, in addition to insurance coverage, it provides a savings component that helps to accrue funds for the future.
Endowment plans offer maturity benefits, which make them quite distinctive. When the policy’s duration is completed, the insured receives a maturity bonus.
These plans are quite flexible. It may include additional features such as riders for critical illness, accidental death, and total and partial disability. Some policies also come with premium waivers for critical illness and disability.
Endowment plans offer excellent tax benefits. Under the previous tax regime, the coverage premiums were deductible under Section 80C of the Income Tax Act of 1961 (the Act). Furthermore, the policy payout can be tax-free under Section 10 (10D) of the Act. Note that these benefits are subject to change from time to time as per the amendments.
The premium payment option can be customised to your comfort. As a policyholder, you can choose to pay premiums monthly, semi-annually, or annually. You can also pay the entire amount at once.
Factors to Consider While Buying Endowment Plan:
Before investing in an endowment policy, it is imperative to understand the ins and outs of it. Listed below are 5 factors to consider while buying endowment plan. Make sure you don’t make an impulsive decision but consider all these factors before purchasing.
Insurance companies generally evaluate the risk of insuring a person based on occupation, age, health state, and lifestyle choices. Younger people having good health tend to pay lower premiums as they are less risk to the insurer.
When purchasing a policy, it is important to consider the level of flexibility provided by various insurance firms. Before investing, understand the premium payment conditions. If you are a salaried employee, use the regular premium payment option. However, if you have an irregular income, you could opt for the single premium payment option or limited payment options.
The length of the term also affects the premium. Longer terms lead to higher rates. Moreover, there are a lot of endowment plans available in the market. Hence, always determine your needs and risk tolerance before selecting a policy. You must know the ins and outs of the plan you are signing for. Additionally, the bigger the SI/coverage amount, the higher the premium. This is because the insurance company is at high risk in case the insurer agrees to pay a bigger sum in the event of a claim.
To make your coverage even more convenient, try adding riders. You can pick between a critical illness rider or an accidental death rider. However, keep in mind that riders are added for an additional fee. Go for a policy that includes several riders so that you can tailor it to your specific needs.
Every insurance firm has its own underwriting rules, which may differ depending on policies and market conditions. The actuary of the insurance company decides the risk of every person based on age group, demography, lifestyle, etc. All of these criteria impact premium rates.
In Conclusion
All in all, endowment plans are dependable investment options, combining the benefits of savings and insurance. They cater to several financial needs and goals, which is yet another reason why they are suitable for different investors. With guaranteed returns, endowment plans ensure both financial growth and security, making them a wise choice for anyone looking to manage their wealth smartly.
