Endowment plans one of the most popular and common type of insurance policies, sought by individuals who are looking for a risk-free investment. Such plans are a great addition to one’s portfolio as they offer a plethora of benefits.
Understanding endowment plans
Endowment plans is one of the best investment options in India. It is a type of life insurance, which offers dual benefits of coverage as well as investment. In case of the unfortunate event of death of the policyholder during the term of the policy, the beneficiary is entitled to receive the death benefit. Besides providing coverage, endowment policies help you to save money regularly over a certain period of time. At the time of maturity, you receive a lump sum amount according to the terms and conditions of the policy.
Who should consider investing in an endowment policy?
Those with a steady stream of income may consider investing in endowment plans. Additionally, such a type of policy may be purchased by those who need a lump sum amount after a certain period of time.
Benefits of endowment plans
The advantages of an endowment plan are what make it a very popular option. Following are eight major benefits of endowment plans that you may use to your advantage.
- Financial security in case of death
Life is uncertain. The risk of an untimely death cannot be ignored. If you are the breadwinner of the family, your loved ones may face numerous financial burdens in your absence. Since an endowment policy offers insurance coverage, your family may use the death benefit amount to meet their financial obligations. It may be used to meet your children’s educational expenses, your children’s marriage expenses, for household expenditure, and your funeral expenses as well. An endowment policy, therefore, offers financial security for your loved ones. You may have peace of mind knowing that their financial needs will be taken care of even when you are not around to help them.
- Survival benefits
In case of survival till the date of maturity, you are entitled to receive the maturity amount. What’s more is that you may also enjoy the benefit of additional bonuses accrued during the policy term. It is important to note that endowment plans offer assured bonuses on an annual basis. Such bonuses are generally paid as a certain percentage of the sum assured. In case of death of the policy holder, the nominee will be paid the death benefit, including the total accumulated bonus included.
- Power of compounding
Endowment plans are investments with high returns as they work on the power of compounding. This is one of the key advantages of endowment plans. Compounding refers to returns that are again reinvested to generate more earnings over time. You may, therefore, enjoy high return, and fulfill your wealth creation goals easily.
- Loan facility
In case you are in need of urgent finances and wish to borrow a loan, you may do so by using your endowment policy as a security. Since such policies are long-term in nature and come with a higher assured amount, loans against endowment plans are easily available.
- Helps in goal-based savings
An endowment policy is useful for individuals who wish to save up and fund certain events or goals further in life. Upon maturity, you may use the proceeds to pay for your child’s future education, your travels across the world, or for your golden years, among others goals.
- Tax benefits
When it comes to endowment plans, you may enjoy tax deductions of the premiums paid under Section 80C of the Income Tax Act, 1961, up to a limit of INR 1 lakh. What’s more is that you may avail of tax exemption on maturity benefits and the final death payout under Section 10(10D) as well.
- Low-risk avenue of investment
Endowment plans, unlike mutual funds or a Unit Linked Insurance Plan (ULIP), do not involve investment in equity funds or stock market. Performance is therefore not linked to the stock market, making it a low-risk investment vehicle. Risk-averse individuals may, therefore, opt for endowment plans and enjoy good returns.
- Coverage according to your needs
Based on your needs and requirements, you may customize your endowment plan accordingly. You may opt for riders, also known as add-ons, to enhance the level of coverage. There are various rider options available with endowment plans, such as accidental death benefit, family income benefit, critical illness rider, waiver of premium rider, disability benefit, and hospital cash benefit, among others. You may choose from a host of riders based on your insurance needs and budget.
An endowment plan is exclusively designed keeping your insurance and investment needs in mind. Before opting for such a policy, it is necessary to be aware of certain aspects. You may compare the premium rates offered by various insurers and narrow down your options to pick the one that gives maximum benefits at the most competitive price. You may also check the insurer’s track record with respect to bonus payments. Other important factors to consider are the customer service track record, claim settlement ratio, and financial position of the insurer. You may also compare all the various features and benefits of available policies before making a final decision.
An endowment policy, being one of the best investment options in India, offers a host of benefits. Therefore, you may invest in such a desirable plan and include it in your financial portfolio.