An endowment policy is a type of life insurance plan which not only covers your life, it also helps save money. It is an insurance cum savings plan. If the policyholder dies within the term of the plan, the nominees get the sum assured + accrued bonuses. If the policy holder survives till the maturity of the plan, he/she gets the sum assured + all bonuses. An endowment plan is an excellent way to save over a specific period of time and enjoy a lump sum at maturity, on surviving the term of the plan.
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1. Features of an endowment plan:
If the policy holder dies within the term of the plan, the nominee gets the sum assured and accrued bonuses. If the policy holder survives till maturity, he gets the sum assured and all bonuses like guaranteed bonus, revisionary bonus and a terminal bonus.
Endowment plans offer flexibility in premium payments. Premiums can be paid on a monthly, quarterly, semi-annually or a yearly basis.
You have riders like accidental death benefit rider, critical illness and even total permanent disability rider. Child endowment plans come with a special feature called waiver of premium rider (WOP). The waiver of premium rider ensures that all future premiums are waived off in case of total and permanent disability of life assured.
You enjoy tax benefits up to Rs 1.5 Lakhs a year under Section 80C of the income tax act. Death benefits enjoy an exemption under Section 10(10D).
Endowment plans are safe vis-à-vis market-linked plans like ULIPs. Returns are not affected by market movements unlike equity funds which are very volatile.
2. Who should consider buying endowment plans?
Endowment plans are very good for conservative investors. Avail an endowment plan to protect loved ones and also attain financial goals like money for retirement, children’s education, marriage or even buying a house. It also helps save money for retirement as you get a lump sum at maturity.
Do remember that premiums are high and you get almost nothing on surrendering early in the plan. Avail endowment plans only if you can afford the premiums. Endowment plans are of long tenure and you need steady income across the tenure.
3. In what circumstances should endowment plans be bought?
Endowment plans are of great help if something untoward happens to the primary breadwinner. The plans offer risk free returns which are lower than equity returns, but are considered guaranteed.
While returns are not great (just around 5-6%), it’s an excellent way for poor savers to save and attain financial goals. The lump sum got at maturity serves as a back up in a financial emergency. The endowment plan offers the twin security of insurance and savings.
4. Why should endowment plans be bought?
Endowment plans help you save money while giving you insurance cover.
You leave financial support for your family in case of an untimely end.
You invest through premiums and grow capital.
An endowment plan offers protection and wealth accumulation for retirement.
You enjoy tax deduction on premiums.
Money back plans, a type of endowment plan, offers money at regular intervals. Money can be arranged at important milestones.
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