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Endowment Policy – Life Insurance Plan With Stable Returns

Endowment life insurance plan

Endowment Policy – Life Insurance Plan With Stable Returns


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June 15, 2020

By : Bajaj Allianz Life

Every year lakhs of people die in road accidents in India. As per recent data, over 1.5 lakh to be precise[1]. Life insurance is essential to guard against such unforeseen circumstances. Keeping an insurance policy active requires you to pay the premiums on time. But you also have other goals for which you need to set aside a portion of the monthly income as savings. How do you balance between savings and insurance? One option you may consider is to invest in an endowment plan.

 

What is an endowment plan?

 

An endowment plan is a product that provides the benefit of insurance as well as savings. Any insurance policy that guarantees death benefit along with providing with a maturity benefit can be termed an endowment plan. The policyholder receives a pay-out at maturity, but if he/she dies during the policy term, the nominee is paid the sum assured. An endowment plan can be unit-linked or non-linked.

Primarily endowment policies are of three types — unit-linked endowment plan, with profit endowment plan or participating and without profit or non-participating plans.

1. Unit-Linked Endowment Plans

When you opt for unit-linked endowment plans, the premium paid is invested in different funds of your choice thereby earning you market linked returns.

2. With Profit Endowment Plan or Participating Plans

Under a with-profit endowment plan, the insurance company declares bonuses. The sum assured is payable in case of death or maturity. Bonus is the additional component. The bonus is a part of the profit earned by the insurer.

3. Non, Without Profit Endowment Plans or Non-Participating Plans

These plans offer guaranteed benefits on death as well as maturity.

 

How does it work?

 

Endowment policies should be a part of every investment portfolio. Endowment plans ensure life insurance coverage, just like other insurance products, and also help you accumulate funds that are paid at maturity. If the insured passes away during the policy tenure, the nominee gets the sum assured. On the other hand, if the insured survives the policy term, he/she is paid a lump-sum amount at maturity. The maturity benefit can be utilised to meet life goals such as children’s marriage or retirement.

 

What are its features and benefits?

 

1. Dual benefits

A life insurance is taken to guard against unforeseen circumstances. An insurance plan ensures the financial stability of the family in case of an unfortunate incident. But along with the insurance cover, it also offers a savings component which helps in creating wealth for the future. An endowment policy essentially provides both death and maturity benefits.

2. Higher returns

An endowment policy is not the only life insurance plan that pays maturity benefits. Products like term plans with return of premium also pay benefit at maturity which is equal to the total premium paid by the customer under the policy. In case of an endowment plan, there is a return on the premium on account of the return from the funds in case of ULIP or Bonus in case of Participating plans or the guaranteed benefit in case of a Non-participating plan

3. Flexibility

Insurance plans may offer certain flexibilities like the premiums which can be paid on a monthly, quarterly, half-yearly or annual basis. Certain plans can have additional features like riders for accidental death, accidental total and partial disability and critical illness etc. Some plans also have premium waiver options for disability and critical illness.

4. Tax benefits

Endowment plans also provide tax benefits. The premiums paid for the policy are eligible for tax deduction under Section 80C of the Income Tax Act, 1961 (the Act). Additionally, the pay-out received from the policy is exempt from taxes under Section 10 (10D) of the Act. Tax benefits are subject to provisions of the Act, as amended from time to time.

5. Long-term savings

An endowment policy is a long-term product. Through the policy, you can save and build wealth systematically over the long term. It inculcates a habit of savings and depending on the type of the policy, the savings grow over a period of time.

 

Factors to consider before buying one

 

It is important to understand every detail of an endowment policy before investing in it. Though it is a life insurance plan, it is used as a tool for long-term savings. One should take into consideration several factors before buying an endowment policy.

1. Plan early

Endowment policies are long-term commitments and it is critical to start early to get the maximum benefits. Endowment plans are designed to accumulate wealth over several years. Starting early boosts the final corpus as the power of compounding works over the long-term.

2. Flexibility

One of the best features of an insurance plan is the flexibility it offers. While buying a policy, it is necessary to evaluate the level of flexibility offered by different insurance companies. One should ascertain the premium payment plans terms before investing. Salaried employees can utilize regular premium payment options, while people with irregular income can avail single premium payment option.

3. Know the type of plan

A number of endowment plans are available in the market. Before buying a plan, it is extremely important to understand your needs, risk appetite and then opt for a policy. One should be aware of the type of plan he/she is signing for.

4. Riders

One can choose to enhance the insurance coverage of an endowment policy by adding riders if the feature is available under the plan. You can choose a critical illness rider or an accidental death rider. Choose a policy that offers a wide variety of riders so that you can customize it as per your requirements.

 

Steps to buy one online

 

An endowment insurance plan ensures that your family remains financially stable even in your absence. To ensure their safety, it is important to purchase the plan from a credible insurer. With the digitization of services and products, a number of companies have such plans available on their corporate websites.

The process to buy an endowment policy online is convenient and simple.

Step 1. Visit the website of the insurer chosen by you and go to the plans sections.

Step 2. Choose the plan.

Step 3. You will be asked to provide some basic details like name, gender, date of birth, phone number, pin code etc. The information will be used to generate a quote.

Step 4. Once the quote is generated, you can choose to make the payment online.

Step 5. After the completion of the payment, one has to fill the proposal form. At this stage, you have to submit the required documents like age proof, residential proof and photograph.

Step 6. All the documents can be submitted online through the website. After the verification of the documents as per the underwriting guidelines of the company, the policy would be issued.

All companies have different buy processes, hence it is best to go through the website thoroughly and follow the steps. You can also opt in for a service where you just drop in your contact details, and the company representative will get in touch with you and help you with the online buy journey.

 

Conclusion

 

Along with being an efficient savings tool, an endowment plan also provides a life insurance cover. The benefits of investing in endowment plans are innumerable.

Source:

[1] https://economictimes.indiatimes.com/news/politics-and-nation/road-accidents-claimed-over-1-5-lakh-lives-in-2018-over-speeding-major-killer/articleshow/72127418.cms?from=mdr

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The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.