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5 Factors to Consider Before Purchasing an Endowment Plan Research Team | Posted On Tuesday, June 04,2019, 05:21 PM

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5 Factors to Consider Before Purchasing an Endowment Plan



What is Endowment Plan?

An endowment policy covers you for a specified time period. If the policyholder dies within the term of the plan, the nominees get sum assured + accrued bonuses. On maturity the insured receives the sum assured + the bonus for the term of the policy. Such policies offer the dual benefit of investment and savings.

Features of Endowment Plan:

  • An endowment plan is life insurance and savings.
  • The beneficiary gets the maturity amount that can be used for fulfilling family obligations or as a retirement corpus.
  • The endowment policy invests your money in safe fixed income instruments.
  • The policy can be enhanced by availing riders (add-on benefits) by paying extra premiums. These are added benefits for a slightly higher premium.
  • Premiums can be paid as per convenience of the insured i.e. monthly, quarterly or even a single premium. Endowment plans are ideal options for those with irregular income.
  • The policyholder can enjoy a tax deduction under Section 80C up to Rs 1.5 Lakhs a year.

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See Also: Endowment Plan Vs Unit Linked Endowment Plan

5 Things to Consider Before Buying an Endowment Policy:

Characteristic of an Endowment Plan:

The key benefit of an endowment plan is that it offers life insurance cover across the policy term and the savings benefit. You enjoy the survival benefit at maturity. You can enhance the cover with riders.

Conditions for Purchasing an Endowment Policy:

  • Provides protection and financial stability to the nominees in case of death of the policyholder within the term of the plan.
  • Helps the insured save money and fulfill long term financial goals.
  • Offers survival benefit i.e. lump sum amount (sum assured + bonus) in case the policyholder survives the policy term.

See Also: Endowment Policy: Compare Plans, Reviews & Benefits Online

Why Should One consider Purchasing an Endowment Policy?

The key benefit of an endowment plan is that it enables financial goal based savings, offers tax benefits as well as ensures risk protection. People who tend to spend excessively may opt for an endowment plan to instill financial discipline as well as fulfill long-term saving goals. Endowment plans can also be availed if you are looking for tax saving options.

Types of Endowment Plans:  

There are several types of endowment plans available in the market today. You must choose the plans according to financial goals and income. The premiums of endowment plans vary across insurers. Listed below are some of the plans that you may choose from:

  • Unit-Linked Endowment Plan: This policy offers mortality cover along with other investment options like an investment in stocks.
  • Full/With Profit Endowment Plan: A full endowment plan is where the sum assured is equal to the death benefit at the inception of the policy. However, the final payout is much higher than the sum assured.
  • Low-Cost Endowment Plan: These endowment plans aim to accumulate funds over a period to cover an existing loan or mortgage. A minimum amount is given to the beneficiary or the dependents to pay off the loan amount either in the event of the death of the insured or on maturity of the policy.
  • Traditional (Non-Participating) Endowment Plans: Under this type of plan, the policyholder does not participate in the profits of the company. The sum assured and the profits payable at maturity are defined at the inception of the policy.

See Also: Everything You Need to Know About Endowment Policy

Checklist for Buying Endowment Plan:

Consider availing an endowment plan based on income, lifestyle and risk appetite. There are a plethora of endowment life plans offered by various insurers. To choose the best plan, compare quotes of different insurers and go through the customer reviews. Check the claim settlement ratio of the insurer before zeroing on an endowment life plan.

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