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Planning to Buy an Endowment Plan? Here’s What You Should Consider


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By : Bajaj Allianz Life

Life insurance plans are essential financial products that you must have in your investment portfolio. Fundamentally, they offer a life cover. This means that in case of your unfortunate, untimely demise, your dependents and loved ones will not be left financially unprotected. The life cover includes death benefits, which the insurance provider will pay out to your nominee.

This can help your family tide over the tough times without suffering any additional financial hardships. However, life insurance plans today offer more than just a life cover. There are different types of life insurance, each with its own distinct benefits.

One such kind of life insurance is endowment insurance.

 

What is an endowment policy?

 

An endowment policy is a kind of life insurance plan that also includes an element of savings. It helps the policyholder save consistently and regularly over the policy term. As a result of this, if the policyholder survives the policy term, the savings are paid out at the time of maturity.

These maturity benefits may be paid out on a lump sum basis or on a regular, periodic basis, depending on the terms and conditions of the policy. This way, the savings component can help the policyholder meet their long-term life goals or set up an additional source of income if needed.

On the other hand, if the policyholder does not outlive the policy, the insurer will pay out the death benefits guaranteed under the plan to the nominee assigned.

 

Things you should consider before buying an endowment plan

 

An endowment plan, as you’ve seen in the section above, has many beneficial features. Nevertheless, before you purchase endowment insurance, you need to consider a few important things. Here are some such essential aspects to account for.

 

• The amount of coverage you need

The first thing you need to factor is the amount of coverage you need. After all, the primary benefit of an endowment policy is a life cover. And you need to ensure that the life cover is adequate for your family’s needs. To do this, factor in their daily expenses, account for their major life goals, and consider inflation. This can help you identify the amount of coverage needed. If you want additional help, you can use a life insurance calculator to compute the right amount of coverage for your family.

 

• The policy term

The policy term is the period over which the life cover will be valid. It is also the time after which your savings will be accessible to you in the form of maturity benefits, if you outlive the policy. A policy term that is too short may leave your family unprotected sooner than later. So, ensure that you choose the right policy term for your endowment plan.

 

• The premium payment options

Some endowment plans may be single premium policies, where you only have to pay a one-time, lump sum premium. Others may be limited premium plans, where the premium is paid for a short period of time, or regular premium plans, where the premium is paid over the entire policy term. You may also have the option to pay your premiums on a monthly, quarterly, semi-annual or annual basis. These are also aspects to consider and decide on when you buy an endowment policy.

 

• The additional riders, if any

You can enhance the benefits offered by your base endowment plan by purchasing add-on riders. These riders offer financial benefits in case of specific insured incidents or expenses. The riders you can opt for is dependent on the product terms and conditions. Further as per the product, you can choose to opt for the riders at the start of the policy or some riders may also be opted for later. And you need to pay an additional rider premium or charge for each rider. So, factor these areas into your decision and only pick the riders that you actually need.

 

• The reputation of the insurance provider

Lastly, before you make your purchase, make sure you are buying from a reputed insurance provider. Check the reviews of existing customers. And take a look at some key numbers like the insurer’s claim settlement ratio and solvency ratio. The claim settlement ratio indicates the percentage of the claims received that the insurer settles, and the solvency ratio indicates whether the company’s cash flow is enough to meet the claim requirements. The higher these ratios are, the better.

 

FAQs

 

1. Can I buy an endowment plan if I already have a term plan?

Yes, you can buy an endowment policy even if you already have a term plan, if you need the additional coverage and benefits. However, you must disclose this in your application.

 

2. Can I have more than one endowment plan in my name?

You can have more than one endowment plans in your name. So, you can purchase an endowment plan even if you already have one. Make sure to disclose this in your application.

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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.

The views stated in this article is not to be construed as investment advice and readers are suggested to seek independent financial advice before making any investment decisions. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.