Beginner’s Guide: 5 Things You Should Know About Endowment Policy
Endowment plans are those life insurance plans which are savings-oriented and would provide you with guaranteed benefits. These plans are offered for a longer duration of about 10 years to 30 years.
If you are looking for an option to accomplish a long-term financial goal, then an Endowment plan is the best option. It will cover three segments which would comprise stable financial health, protection, and the achievement of your financial goals. Endowment plans might give you lower returns; however, the investment-related risk is quite low.
Usually, Endowment plans are available with two clauses i.e.
- With Profit – In 'Profit Endowment plans', on maturity along with the sum assured various other additional benefits are paid in the form of Terminal and Reversionary bonuses.
- Without Profit – In 'Without Profit Endowment plans', there are no additional benefits offered and the plan can be considered similar to that of a Traditional Life Insurance plan.
In addition to the bonus, Endowment plans would also provide you with some other type of returns such as:-
- Guaranteed Additions - Guaranteed additions are paid for a specific duration of time. The rate of obtaining these additions is pre-determined and is calculated on the sum assured.
- Loyalty Additions - Loyalty additions are usually included in long-term Endowment policies if the policy would continue for more than 10 years. Loyalty additions are usually added into the policy as a one-time addition at a rate which is predetermined. This rate is applied to the sum assured of the Endowment plan.
Let us talk about the 5 major things which you should definitely know about an Endowment Policy.
5 Things About Endowment Policy
1. Death benefits and Maturity benefits
An endowment plan is a unique investment option as it would guarantee you with benefits as a maturity benefit in case you survive the policy tenure. Moreover, it also provides your nominee with the sum assured along with other bonuses as the death benefit in case of your demise during the policy tenure. So, Endowment plans provide you with both death benefits and maturity benefits as per the case.
2. Flexibility in coverage
By an Endowment plan, you can avail of flexible coverage. You are entitled to purchase additional benefits such as various rider benefits like accidental death and disability, critical illnesses, etc. By including these riders into your policy the scope of your Endowment policy would become quite flexible. However, it would increase the premium of the policy up to a certain extent.
3. Flexible payment terms for premium
Usually, the insurance providers who are offering Endowment Plans offer flexible terms for payment of their premium. You can pay the policy premium according to the frequency chosen by you according to your convenience. This frequency for premium payment can be monthly, quarterly, or even by one-time payment of the lump sum amount.
Since the feature of extra bonuses is available for the Endowment plans, the actual maturity benefit would be higher than any other traditional life insurance policy without the bonus. The benefits are higher as along with the sum assured several other payable amounts can also be obtained.
5. Tax benefits
Tax benefits are offered along with the Endowment policies as the premium paid is tax-deductible under Section 80C of the Income Tax Act, 1961. The maturity benefits which are obtained from the Endowment plans are also tax exempted as per the provisions of section 10(10D) of the Income Tax Act, 1961, provided the sum assured is at least 10 times the annualised premium.
Moreover, even though the Endowment policies provide high returns along with bonuses and other additions, there is no inflation adjustment in the returns. Since Endowment plans are purchased for a long duration there are probabilities that the ultimate return which is generated after the policy term may not have the real value due to inflation.
Apart from these essential features, Endowment policies also offer the option by which you can change the policy to paid-up. You can also avail a loan against your Endowment policy. However, to avail of these benefits, you would have to pay the policy premium for a minimum duration and need to confirm with your insurer if your policy offers such an option.
Should you purchase an Endowment policy?
Your requirements are the main factor you should consider while planning to purchase an Endowment policy. In case you are a risk-averse investor and your major objective is to create guaranteed savings and life cover both, then you can opt for buying an Endowment policy. You should assess your risk profile and the returns which can be obtained from the Endowment plans to decide whether to choose this plan or not.
If you plan to invest in an Endowment policy, then you can consider a participating Endowment Plan which would provide you with a good bonus and high returns.
You would not like to have any surprises with the policy after your purchase. So, you must understand clearly the important aspects of the Endowment policy, its scope of coverage, benefits, etc. and then purchase your policy to meet your particular financial goal.