New-Generation Endowments May be Worth a Look

The purpose of a life insurance company is to protect the financial interests of one’s family. Term insurance policy is a pure insurance plan which offers a high payout in the event of the policyholder’s death. However, there aren’t any returns if the policyholder survives the policy term. To deliver financial benefits to the policyholder, endowment policies were designed by life insurance companies.

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An endowment policy guarantees a certain amount of money which is called a maturity amount after the end of the term. There is a new generation of endowment policies which offer multiple benefits to customers.

Features of endowment policies

An endowment policy guarantees a certain sum of money after the end of the policy term. If you would like to take explore investment options along with the benefits of insurance, you can consider opting for an endowment life insurance policy. The maturity payment can be made at the end of the term. There are endowment policies offered by insurance companies which will grant a certain sum of money if the policyholder is detected with critical illness.

  • Payout – The sum assured will be paid at the end of the term, or the death of the policyholder, or on being diagnosed with a critical illness

  • Participation in profits – Endowment policies are available with profit or without profit.

  • Bonus payment – The bonus applicable for the entire term will be paid by the insurance company at the end of the term.

  • Premium payment mode – There are various premium payment options for an insurance plan. You can choose a single premium payment option or quarterly, semi-annual or annual premium payment plan, as per your convenience.

Benefits of an endowment insurance plan

There are many benefits associated with an endowment insurance plan. The policyholder will be covered by the insurance throughout the term. After the end of the policy term, the company will pay a lump sum amount. Very often, the payout is higher than the payment expected of a money back insurance policy.

An endowment policy will serve the purpose of life protection as well as investment. You will also get an exemption from income tax. The premium paid towards the endowment policy is exempted from income tax under Section 80C. The maturity proceeds of the insurance plan are exempted from the tax liabilities under Section 10 (10D).

There is no risk in investing in endowment policies. If you invest money in mutual funds, there is a risk to the principal amount. You will get returns linked to the market growth. However, endowment plans offer guaranteed returns thus eliminating any risk on your investments.

There are endowment policies which extend the risk beyond the insurance term. You can subscribe to additional riders such as critical illness and disability so that the payout will be substantial.

New-generation endowment policies

As per the aspirations of policyholders, new types of life insurance policies have been launched by insurance companies. The new generation endowment policies will cover the risk in a very efficient way. You will get a higher sum assured and the investment returns will be high. It is possible to meet various goals in life with the returns of endowment policy.

  • Unit-linked policies – There are unit-linked endowment policies which offer risk coverage plus investment benefits. The policyholders can choose funds as per their investment goals.

  • Full endowment policies – The death benefit will be applicable from the policy subscription date. If the policyholder dies, the sum assured plus bonuses, on a pro-rata basis, will be paid to the nominee. There will be a higher payout with the endowment plan.

  • Simple endowment plans – The purpose of the simple endowment plan is the accumulation of funds and the funds will be paid after a specific period of time.

  • Participating Plans – As a policyholder, you can participate in the profits of the insurance company. The insurance company will pay a small portion of profits in the form of a bonus to the policyholder.

  • Non-participating plan – The policyholder will not participate in the profits of the company by subscribing to a non-participating plan.

  • Whole life endowment plan – You can choose a whole life endowment plan which covers up to 100 years. Bonuses will be added to the policy and they will be paid to the policyholder at the end of the term.

Selection of endowment plan

There are different kinds of endowment plans. You should choose the right insurance policy to fulfill your financial needs. The selection of an endowment policy is based on the following factors:

  • Individual needs

  • Current age

  • Income

  • Risk appetite

The premium of an endowment policy is higher than that of a term insurance plan. You should choose a premium that will be easy for you to pay over an extended period of time. You can choose a payment mode as per your convenience.

The bonus paid by the insurance company will also factor in your decision. As you are choosing the plan to make gains, you should choose a company that delivers the best financial benefits. The customer support provided by the insurance company will also influence your decision.

You should choose endowment plan which comes with simple features. If you do not understand the terms and conditions, you should contact the customer support team.

You should disclose your personal information to the insurance company accurately without any omissions. If you fail to share correct personal and other details with the bank, the claim may be rejected by the insurance company. Conversely, you should be aware of the exclusions of your policy as well. You will not have to face any unpleasant surprises when you are aware of the exclusions.

Riders

Riders deliver add-on benefits to policyholders. The following riders are applicable to endowment policies:

  • Critical illness

  • Waiver of premium

  • Accidental death

  • Disability (partial and permanent)

  • Accelerated sum assured

  • Emergency cash

Popular endowment plans

Popular endowment plans are offered by reputed insurance companies such as Reliance, Kotak life, HDFC Life, Bajaj Allianz and LIC.

Term insurance vs. endowment policy

The prime focus of a term insurance plan is protection. It will offer an insurance cover during the term of the plan. In case of the policyholder’s unfortunate demise during the policy term, the death benefit is paid to the nominee. You can buy a term insurance plan at a very low insurance premium and get a very high insurance cover. There is no benefit if the policyholder survives the policy term.

On the other hand, an endowment plan will cover the risk and provide a lump sum benefit to the policyholder. If the policyholder passes away during the policy term, the maturity amount will be paid to the nominee. If the policyholder survives the term, the sum assured plus bonuses (as per the company policy) will be paid to the policyholder. Thus, an endowment plan will offer protection plus investment benefits to the policyholder.

Liquidity – If you buy a term insurance plan, there is no element of liquidity. You will not be able to take loans against the plan. However, with the help of the endowment plan, you will be able to take a loan without any issues. The endowment plan offers a surrender benefit. If you pay the insurance premium for at least 3 years, the policy will get a surrender benefit. You can meet the financial emergency with the help of the endowment policy.

Who should buy an endowment policy?

Endowment policies are ideal for people who would like to contribute premiums on a regular basis. The premium can be paid in a single installment as well.

If you have a steady source of income, you can subscribe to the endowment plan. It is possible to save for the future in a disciplined manner with the help of the endowment plan.

You can build a large corpus by subscribing to an endowment plan. The corpus will be helpful in buying a retirement plan. You can meet the educational or the wedding expenses of your children.

There is no risk with the endowment policy. You will get insurance benefits and financial benefits at the end of the term. The guaranteed sum assured will inspire you to contribute to the insurance plan. If there is unfortunate death or accident of the policyholder, the sum assured will be paid to the nominee.

You should buy an insurance plan when you are young. If you buy a policy at a young age, the premium will be low and the same premium will be applicable throughout the policy term.

Conclusion

The endowment policy is the best option to generate income with the insurance plan. You can choose the premium mode, premium rate and premium term as per your convenience. The sum assured will be in proportion to the premium contribution in a financial year. Instead of covering the risk factor alone, the endowment plan will offer returns as well. Hence, the policyholder as well as the dependents will have a secure source of income. The income protection and insurance benefit will be efficiently delivered with an endowment plan. You can also choose various riders through which you can enjoy additional benefits. 

Past 5 Year annualised returns as on 01-06-2024

^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.

Tax benefit is subject to changes in tax laws. Standard T&C Apply
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ

^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

#The lumpsum benefit is calculated if policyholder invested ₹10000 monthly for 10 years in the fund with a policy term of 20 years. This Point To Point past performance data of last 10 years has been used to illustrate a scenario for the customers benefit. It is assumed that the past 10 years returns would have also been delivered in last 20 years. This is not guaranteed and not in anyway indicative of what the customer may actually get 20 years from now. The investment is subject to market risk and the risk is borne by the policyholder.

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