Life Insurance

Things Should Know Before Buying An Endowment Plan

Nov 24, 2021

Things Should Know Before Buying An Endowment Plan

Rahul is a spendthrift. He loves to splurge on himself and his loved ones. The reason he can spend so much is because he earns a good amount of salary and doesn’t hesitate to spend so much but at the end of the month, he always finds himself saving less than his fellow employees even though he earns more than them.

Do you find yourself caught up in a similar situation and do not understand why this happens to you? There is no harm in pleasing yourself and the ones you love with fancy things and rightly so because everyone deserves to treat themselves but do you ever just pause for a moment and think that if you try to save just a small chunk of the amount you end spending on things you may or may not use in the future, you can secure your life that you have yet to live.

If you decide to save some portion of the money that you splurge on things that will not be handy in the future, you should save smart by investing in an Endowment Plan. It will help you with securing yourself and your family in case you meet with a terrible fate. An Endowment Plan is one kind of an insurance policy that promotes savings for substantial occasions. With this, your family can carry out their life and manage huge expenses in your absence. This is the option to save money, get tax benefits and yet create a back-up plan for your family with insurance coverage.

Why choose an Endowment Plan?

Choosing an Endowment Plan is a measure that can be undertaken in order to kickstart your savings if you are a spendthrift. It is a step towards regulating your expenses and securing yourself for a bright future ahead. Uncertainties associated with Endowment Policies are considerably low because of which investing in an Endowment Plan is a good choice.

When you speak of Endowment Policies you can also have the benefit of exemptions in tax from The Tax Department of India. Moreover, the other filed recipients of the plan will attain a full recovery of the settlement in the instance of unforeseen circumstances such as your death.

So if you are somebody who likes playing safe and makes decisions keeping in mind the risk factor then an Endowment Plan is meant for you. 

Who needs to buy an Endowment Plan?

  • A person who is spontaneous with their purchases who has no other alternate resource whatsoever to support themselves financially can opt for Endowment Plan
  • Someone who is looking for a low-risk insurance policy and good benefits as well as saving for the purpose of a good and relaxed retirement life can consider an Endowment Plan.
  • Any individual who is looking for a plan that has long-lasting benefits and a hefty and lump sum amount at the time of its maturity has to go for an Endowment Plan.
  • Endowment Policies are most suitable for the ones who have a steady flow of income and have certain aims with regards to the future of their family and their well being.
  • Endowment Policies are perfect for those who want a plan that generates lofty or huge returns and are patient enough to invest their money for a long period of time.

How to choose an Endowment Plan?

Choosing an Endowment Plan could be tricky as there are so many options available in the market to choose from. By taking a look at the following points, you should get a fair idea as to how one should select the Endowment Plan that relates to your needs and is in your capacity.

  1. Individual needs: 
    You should take into consideration what your expectations are from your plan if you choose to buy one. For that, you will need to carefully read the fine print of your plan so that you are clear about your requirements from your plan.

     
  2. Lifestyle: 
    If you consider yourself as a spendthrift who wants to curtail their expenses then Endowment policies are a good step to attain some amount of financial discipline. But how much are you willing to save is the question. You are used to a particular type of lifestyle and giving that up would be a little difficult. So, based on your lifestyle and your willingness to invest you can choose the plan most suitable for you.

     
  3. Openness to take a chance: 
    As mentioned earlier, the risks involved with Endowment policies are comparatively meagre because of which the people who would not want to take a risk while investing should think about purchasing an Endowment Plan.

Factors to consider while planning to buy an Endowment Plan:

Once you decide to render finances for the acquisition of an Endowment Plan you should inspect certain factors that would help you choose the best plan for yourself. Just like how you would research before buying a car or any other asset for that matter in the same way it is pretty important to do proper research about the best scheme for yourself because your future is at stake.

  1. Cost-Effective premium: 
    You must have detailed knowledge about the scheme that you want to invest in and based on your lifestyle and capability to pay, you should choose a scheme that fits you the best. The premium should be affordable so that you will not face issues that could lead to difficulties in payment of premium. The benefits of the endowment plan along with riders, if any should be justified with the amount of premium payable.

     
  2. Customer Service: 
    When you choose an Endowment Plan you have to look into the nitty-gritty details of the plan. For example: What is the process of the claim? What is the scale of the claim that is payable by the company when one is ready to settle it? Does the company communicate with its customers even via simple emails or text messages?
    These are important details to understand how the customer service would be after the purchase is done. Unlike health insurance plans, you cannot port life insurance plans after the same has already been purchased. Hence analysing these details beforehand is of utmost importance.

     
  3. The reputation of the company: 
    After much dilly-dallying when you finally decide upon a company to purchase your insurance, the last thing that you would want is to be duped and not have the bounty you always hoped you would have enjoyed in the age of relaxing or for helping out your family in case you were to pass along too soon. Thus, it is very crucial to look into the history of the company and whether or not they are transparent with their business dealings. Even the claim settlement ratio or the CSR of the company determines the reputation.

Top #6 Things to know about the Endowment Plan before buying it:

 

  1. Survival and Maturity Benefit: The most attractive prospect of an Endowment plan is that you will receive your maturity gains if the policyholder survives the duration of the policy. This is the guaranteed benefit provided by an endowment plan. So, the survival and the maturity benefit determines the amount receivable in this plan and hence plays a very important role.

     
  2. Death Benefit: If the policyholder passes away during the course of the policy, the beneficiary will receive the policyholder’s gains from the plan at the time of settlement. This is a guaranteed return that you are bound to receive from an Endowment Plan if the insured happens to die within the policy tenure.

     
  3. Bonus component: There is a chance of you receiving a bonus from the company if you choose to buy a with-profit endowment plan. This is possible when the company earns a bonus for the financial year as they give a portion of the profit to their policyholders. This is the non-guaranteed part of the return in an endowment plan.

     
  4. The flexibility of coverage: Endowment plans are a good choice because there is flexibility in coverage and you can also choose to purchase accompaniments such as riders that can include disability rider, accidental death rider and so on.

     
  5. Premium paying tenure: Another advantage of an Endowment Plan is that its premium payment terms are very adaptable. You can choose the tenure of your premium payment. You can choose to pay the premium either yearly, half-yearly or you can pay the premium all at once.

     
  6. Tax Benefits (80C and 10(10)D): You will also qualify for tax benefits through an endowment plan as the gains received and also the premium is likely to receive tax benefits.
    The premium paid towards an endowment plan up to INR 1.5 lakhs a year is tax-free under section 80C and the maturity benefit is also tax-free under section 10(10)D provided the sum assured is at least 10 times the annualised premium in all the years.

Conclusion

 

If you want to make the best out of your retired life or provide family support plus save some coin, then without a doubt an Endowment Plan is meant for you. Make sure that you finalise on an uncomplicated straight forward plan. After reading this article you may have surely made up your mind to invest in an Endowment Plan.

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