Things You Should Know Before Purchasing an Endowment Plan

An endowment policy is an insurance plan that provides guaranteed benefits in the form of the total sum assured with many other bonuses to its policyholders when it matures or if the policyholder dies during the policy term. Endowment plans are a type of insurance instrument wherein added advantages of savings are provided to the investor. In this way, an endowment plan not only offers the benefit of sum assured to the nominee when the policyholder dies before the policy matures and as well offers the policyholder to get the benefits of maturity bonuses when he/she survives the term of the policy.

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Most of the endowment plans come with two options – 'with profit' and 'without profit'. An endowment plan that is profit-oriented comes with many terminal and revisionary advantages that add to the actual sum assured on the plan's maturity and hence provide add-on fund benefits. A non-profit oriented endowment plan does not provide such benefits and hence can be considered as a traditional plan of life insurance. On the other hand, an endowment plan offers lump-sum pay-out and hence encompasses the maturity benefits and benefits of the main plan, which is the sum assured. This means that the policyholder can get the pay-out upon maturity of the plan and as well provides the option to further investment of the funds as and when needed.

So, one can purchase an endowment plan as per his/her requirements and according to his/her financial goals and there are no pre-fixed or rigid rules related to the term of the policy.

One should know the below five things before buying an endowment plan:

  • Death Benefits along with Survival Benefits: The best part about endowment plans is that they provide maturity or survival benefits when the policyholder outlives the term of the policy. However, if he/she dies within the policy term, then death benefits are also given to the nominee of the policyholder. In this way, these plans offer the dual benefit of death and survival both.
  • Frequency of Premium Payment: Most of the time the insurance providers offer flexible terms of premium payment. This means that a policyholder has the convenience of selecting the premium payment frequency. This frequency can be bi-annually, annually, monthly, or one-time payment.
  • High Returns: The bonus feature means that the returns of an endowment policy are higher than its traditional counterparts, which are life insurance plans (traditional) or term insurance plans. With regular sum assured, there are additional payable amounts that are combined with it and therefore, the benefits of this plan are high.
  • The benefit of Income Tax: An endowment plan provides tax benefits because the premium that is paid and the benefits of the main plan (sum assured as well as maturity proceeds) are all eligible for tax-exemptions u/s 80C and 10D of the Income Tax Act, 1961.
  • Cover Flexibility: An endowment policy provides the advantage of flexible coverage and the insured can select to buy additional benefits as rider benefits such as total or partial disability rider, accidental death rider, critical illness rider, etc. The add-ons or riders impact the payable premiums, however, the coverage scope becomes flexible with this feature.

Final Words: These are the top five things that one should know before purchasing any endowment plan. Most investment plans that come under the endowment category offer extensive financial coverage and ensure that there are economical terms and conditions applied for the coverage they offer. So, if you want to purchase a term plan with maturity benefits, opting for an endowment policy is recommended.

Past 5 Year annualised returns as on 01-04-2024

^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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