An Endowment plan is a type of life insurance policy that serves two functions. You may utilize endowment insurance to develop a risk-free savings corpus while also providing financial security for your family in the event of an unexpected occurrence. The simplicity of an endowment plan has made it appealing savings plan for everybody over the years.
Strong endowment insurance gives us the confidence and tax-free1 returns we need to meet future crises while also allowing us to accomplish non-negotiable life objectives like paying for our children’s education, marriage, or enjoying a dignified retired life on our own.
In the event of your death within the insurance term, your loved ones will get the money you designated for them in a timely and trouble-free way. As a result, an endowment plan functions as a financial shield for you and your family.
What is an Endowment Life Insurance Plan?
Endowment plans are all-purpose life insurance products. They give financial security as well as a vehicle for saving and growing wealth. So, if you require a policy that provides life insurance protection, a maturity benefit, and a tax advantage all in one bundle, consider purchasing an endowment plan.
Some plans additionally include guaranteed additions, which means that a certain proportion of total premiums paid or Guaranteed Maturity benefits are added to your insurance benefits each year, based on the length of your policy.
Why should you buy an Endowment Policy?
There are several reasons to buy an endowment policy. It can assist you in building your financial pool through regular savings. The money earned at maturity can be utilised for a variety of immediate and long-term financial goals, including a child’s education, the purchase of a car, post-retirement plans, and more. It also assists you in financially protecting your family in the event of an unexpected incident, thanks to the built-in life cover.
Benefits of an Endowment Policy
There are broadly four benefits of an endowment policy.
Life Insurance Benefit:
Your loved ones are always in good hands. The life insurance benefit provides a lump sum pay-out, guaranteeing that your family members may continue to live the life you so carefully planned for them even if you die unexpectedly. This is a predetermined sum that is delivered to your nominee/legal successor. Remember that certain plans provide guaranteed increases and Reversionary Bonuses, which are factored into the death benefit calculation.
For example, a 35-year-old purchasing an ICICI Pru Savings Suraksha pays a 30,000 yearly premium for a sum insured on death# of 3 lakh. As a result, they receive ten times the money insured for the premium.
The maturity benefit remains intact as long as you pay your premiums on time and keep the endowment insurance active. This is a fixed maturity benefit amount that will allow you to fulfill your financial objectives.
This maturity benefit is determined by the policy term, premium payment period, age, and gender. Some insurance may provide guaranteed additions upon maturity. Aside from that, Accrued Reversionary incentives and Terminal bonuses are possible in participative policies.
Endowment insurance schemes often provide tax advantages. Under Section 80C of the IT Act, the premiums you will pay can assist you to lower your taxable income. There are also tax advantages available upon the maturity of endowment policies. This allows you to save tax at the policy’s start, accumulation, and maturity stages.
Whether you prefer to pay your income tax online or in person, you must estimate your tax responsibilities ahead of time, especially if you are salaried. However, future earnings are rarely accurate predictors. So you estimate your potential taxes twice: once at the start of the fiscal year and again at the conclusion. An income tax calculator can assist you in estimating your tax due both in advance and later in the fiscal year.
Endowment policies can be used to get a loan. A policy loan is available after a policy has a surrender value. The interest rate on such loans is extremely low. Some ICICI Prudential conventional plans, for example, provide a loan amount of up to 80% of the surrender value. The loan advantage assists you in arranging cash in an emergency or when all other avenues of the collection are closed.
Option to Add riders
Endowment plans have extra riders that supplement the plan’s coverage. You may extend your protection by adding a critical illness rider, an accidental death rider, or a permanent disability rider.
Endowment policies are typically low-risk investments. With most endowment plans, your money increases over time and your returns are guaranteed.
You get to enjoy the benefits of both insurance and investing. Your funds grow over time, and your family is protected in the event of a disaster.
Because it is a combination of an investment and a life insurance policy, this plan provides lifelong coverage to the life guaranteed. If the life assured dies during the policy period, the nominee receives the whole amount assured benefit. This plan assures that your family will live comfortably even if you are not present.
Another significant advantage of endowment plans is that you may pay your premiums over a short period while enjoying the insurance benefits over a lengthy period. If premium payments halt after a specified number of minimum years’ premiums have been paid, a free paid-up policy with a reduced sum insured can be obtained – subject to certain criteria.
Endowment plans proclaim a yearly bonus, which is normally paid as a percentage of the total secured. Additional bonuses accumulated over the policy period are paid in addition to the sum promised in the event of the policyholder’s survival. In the event of death within the policy term, the nominee receives the death benefit, which includes the whole sum guaranteed as well as the total accumulated bonus.
Wrapping It Up
Endowment plans combine life insurance with the ability to invest. If the life guaranteed dies during the insurance period, the nominee receives a death benefit. If the life guaranteed survives to the end of the policy term, the maturity benefit will be given to him or her. As a participating plan, this plan offers guaranteed addition. You can also get tax breaks with this plan.
Endowment policies combine financial and income protection into a single package. In the case of the life assured’s untimely death, the nominee receives the promised sum. This plan also contains a maturity benefit, which implies that if the life assured survives the policy term, he or she would get a maturity benefit at plan maturity.
Since they are participating plans, Endowment plans also provide guaranteed additions in the form of a yearly bonus announced on the policy during the policy term.
Note: This article was published under our new category “FinTech” that we started seeing the tech innovation in Finance.
This post was last modified on January 10, 2022 5:00 PM