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What are the Types of Endowment Plans?


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July 22, 2022

By : Bajaj Allianz Life

You will need a sizable corpus of funds to secure the financial well-being of your family members or achieve long-term life goals like buying your dream home or sending your children to the best international universities. Endowment plans are popular dual benefit policies that offer you a life cover as well as a long-term savings opportunity. They help you develop a savings habit to build a fund reserve for the future and ensure a death benefit payout for your dependents if anything untoward happens to you during the policy tenure.

As comprehensive life insurance policies, such plans have you covered in the face of contingency. From acting as a security for your loans to helping your family meet its expenses in the event of an eventuality, endowment plans are versatile insurance -cum- investment policies you may consider.

While the advantages of an endowment plan are endless, picking the right type of endowment policy can also make a decisive difference in the benefits you reap from the plan. To make an informed choice, you must first acquaint yourself with the various types of endowment plans and what each of them has to offer:

 

Participating Endowment Plans

 

As known as with-profits endowment plans, these policies help you build a large corpus of wealth over time. When you opt for such types of endowment plans, you’re entitled to a sum assured that’s credited at the end of the policy term or in the event of your untimely demise during the policy tenure.

With the cumulative annual bonuses, if any, earned during the policy tenure and the growth of your investment, the maturity benefits from such plans tend to be higher than the initial sum assured under the plan. Thus, you can finance your children’s education or your own retirement with the accumulated wealth from such types of endowment policies.

 

Non-Profit Endowment Plans

 

As the name suggests, you earn no profits with such types of endowment policies as insurers don’t offer additional bonuses on the initial sum assured. When you buy such types of endowment life insurance policies, you are only promised a certain lump-sum payment.

This predetermined benefit amount is paid to you on maturity, or the death benefit will be paid to your listed nominee if anything untoward happens to you before the policy tenure expires. While such policies lack the additional wealth-building benefit, they sure do serve as prudent safety nets for your family, helping them maintain financial stability when going through tough times.

 

Unit-Linked Endowment Plans

 

These types of endowment life insurance policies are fixed-term schemes, where your premiums are used to buy units of market-linked investment funds. These policies also provide you with a life cover that can help sustain your family in the event of your untimely demise.

However, since such plans are market-linked, the returns that you stand to derive from them will be based on how well the underlying funds perform and other market conditions. For instance, if the market keeps rising, your returns may also keep growing if the fund also generates positive returns, however, if the markets plummet, it can impact the underlying fund and consequently your investment. Thus, you may consider opting for such plans only if you have a high-risk tolerance threshold.

 

Summing It Up

 

Since there are different types of endowment plans available in the market, it is always preferable to first assess your own life goals and risk appetites before proceeding to buy an endowment policy. If your goal is to secure the financial future of your loved ones, opting for a profit or non-profit endowment plan may be prudent.

However, if you’re ready to test the market waters and have a high-risk tolerance threshold, you can opt for a unit-linked endowment plan. The bottom line remains that higher returns may come with sizable risks. Thus, you must evaluate endowment plans accordingly.

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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.