You can define life insurance as a plan that offers the features of life cover and helps grow money as an endowment plan. Typically, an endowment plan extends returns whose amount is fixed at the time of purchasing the policy. You can use an endowment insurance plan to save a corpus to meet financial goals like buying a house, sponsoring a child’s education or marriage, starting a new business, or making a high-end purchase. You should note that there are several benefits to getting an endowment insurance plan. However, to make the most of such features you need to know more than what is endowment plan is and its scope.
How Does an Endowment Insurance Plan Work?
As mentioned, endowment insurance plans offer the best life cover and investment plan by helping your money grow. The life cover part is designed to help you secure the financial future of your loved ones against unfortunate events. On the other hand, the promised return benefit is aimed to help you meet your financial goals.
To understand what is life insurance in simple words and how an endowment plan works, it is important to know these key aspects –
Notably, an endowment plan will offer you the flexibility to select a suitable premium amount that you would be able to pay towards the plan without straining your budget.
For instance, based on your preference and type of plan, you make a monthly, semi-annually, or annually premium payment schedule. The life cover offer should essentially be at least 10 times your annual premium. The savings part would offer you a fixed amount of money or maturity amount at the end of the prefixed tenure. Notably, this maturity amount will not be influenced by market fluctuations. Typically, in the event of the sudden death of the insured during the plan’s tenure, the policy nominee receives the life cover and an additional amount, if mentioned in the plan.
What are the Key Features of an Endowment Plans
Some key features of an environment plan are –
- Tenure: You will find that endowment plans come with a tenure of 5-35 years.
- Bonus: Some endowment plans may also offer a provision of bonus. It is advised to check with a policy agent or insurance company about this feature before getting a plan.
- Market influence: Endowment plans are not market-linked, so market movements will not influence your money. You are likely to receive a fixed amount of sum assured or maturity benefit. The amount is usually fixed at the time of purchasing the policy.
What are the Types of Endowment Policy?
You will find several types of endowment plans, however, some of the most popular ones are –
- Participating endowment plans
This type of endowment plan offers a bonus on the promised sum assured. In case the insurer makes a profit, they may decide to distribute a part of it to policyholders as a bonus.
- Non-participating endowment plans
This plan does not offer any bonuses to the policyholders.
- Whole life endowment plans
This plan extends coverage for nearly 99-100 years of age. In this plan, the premium payment tenure is limited to a certain tenure. However, you can enjoy lifelong coverage. Here, in case of sudden death, the policy nominee receives a death benefit. On the other hand, when the policy matures the insured gets a maturity amount.
- Single premium endowment policy
This plan needs you to pay just one premium at the beginning of the policy. This means you do not have to pay any premium during the policy term and continue to enjoy coverage throughout the tenure.
- Money-back policy
This is an anticipated endowment plan that pays a part of the sum assured during the ongoing policy tenure. The moneyback features give insured access to funds during tenure and help meet some financial goals. You should note that the death benefit does not get affected by the moneyback benefit the insured accesses during the policy tenure. In case of sudden death during the tenure, the full death benefit is offered to policy nominees.
- Child plans
This plan is designed to help you build a guaranteed corpus for your child’s financial future and specific needs. Child plans often come with a premium waiver rider, when the premium amount can get waived in case of the untimely death of the parent during active tenure. The plan continues till a predefined maturity date as the insurer continues to pay the plan’s premium on behalf of the parent. When the plan reaches the maturity date, the maturity benefit is paid to the beneficiary.
What are the Benefits of an Endowment Plan?
An endowment plan will benefit you in these ways –
- You will receive guaranteed benefits. This feature makes the plan ideal for risk-averse people who wish to build a corpus. Also, the fact that the death benefit is not linked to market performance will ensure you access the full sum.
- Bonus along with promised returns make participating endowment plans lucrative. Even if you choose non-participating plans you can earn
- The bonus additions will generate attractive returns if you choose participating endowment plans.
- As mentioned earlier, when you avail of an endowment plan you can not only create a corpus but also generate a life cover. This helps you not only build a corpus to meet important financial goals but also protect the financial standing of your family members, which will help them meet their financial obligations without relying on others in your absence.
- Endowment plans can also help you save on taxes. The amount of premium you pay to avail of the policy, you can claim up to 10% of the sum assured as a deduction. Notably, any bonus, addition, or death benefit is tax-free.
These benefits and features make endowment plans a lucrative insurance option for those seeking protection and savings benefits. However, when you seek an endowment plan make sure to compare features and read fine print to make an informed decision. Additionally, check the exclusions and claim process to understand how flexible and policy buyer-centric the claim is.
