What is an Endowment Policy? – Know Meaning, Benefits and Features of an Endowment Plan

Life is full of uncertainties. One of the most uncertain things in life is death, which can happen at any time. When an individual passes away or becomes incapacitated, he wants his family to be financially secure. At the same time, he does not want to leave his family completely dependent on him. While a regular investment plan helps you secure your personal and financial goals over a long period, an endowment plan takes this one step further and ensures that your loved ones are provided with a constant income source even after you pass away.

This blog will provide a guide on endowment policies and why you should get them.

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What is an Endowment Policy?

An Endowment Policy is a type of insurance plan that offers the advantages of both insurance coverage and a savings account.

You will be allowed to save consistently with this form of insurance policy, allowing you to receive a single amount payment when the plan expires. Depending on the mentioned conditions and circumstances, you will get a guaranteed sum at the conclusion of the insurance period. In the event of your unfortunate death, the insurance firm will reimburse the guaranteed sum, as well as any earned bonuses, to the beneficiary named in the plan.

An endowment policy is vital since it helps you monetarily protect the members of your family once you retire. It enables you to satisfy the monetary demands of your kid’s schooling, wedding, as well as your financial goals like the purchase of your dream property.

Following are the benefits of Endowment Policy?

• Benefits upon Death as well as Survival
• High Profits
• Frequency of Premium Installments
• Riders
• Tax Advantages

1. Benefits upon Death as well as Survival

In the event of your unfortunate death, your beneficiary or nominee will get the sum promised, as well as any accrued bonuses. If on the other side, you outlast the insurance period, you will be awarded the same benefit.

2. High Profits

An endowment policy helps you to create a solid financial future for yourself and the members of your family. In comparison to most life insurance plans, the deaths, as well as survival rewards, are fairly large.

3. Frequency of Premium Installments

The premium amounts can be collected in a variety of ways, depending on the sort of coverage you’ve chosen. You are eligible to pay premiums monthly, quarterly, semi-annually, or annually.

4. Riders

Rider benefits such as critical illness coverage, total disability, as well as accidental death may be acquired in addition to the base coverage. Furthermore, specialized plans give discounts on the premium sum charged for complete permanent disability as well as critical illness coverage.

5. Tax Advantages

Sections 80C and 10(10D) exempt policyholders from paying taxes on both the sum of premiums you pay and the sum you receive once the policy matures.

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Under what conditions endowment policies should be purchased?

People should purchase endowment policies for three reasons:

• To financially secure and assure their dependents;
• For goal-based investments;
• To develop a corpus to accomplish an investing purpose over a lengthy period of time.

Because these are usually long-term policies, the lengthier the plan duration, the greater the total gains. As a result, persons with intermittent income can enroll in flexi-pay or single pay policies but not in regular endowment programs. Long-term as well as regular savings are the crucial elements here. Endowment schemes perform better when these two factors are addressed.

Why should you buy endowment plans?

Endowment policies provide a structured strategy to save cash for potential financial requirements. An extra benefit is the life insurance protection, which would be quite beneficial to the household if something unexpected happened to the primary earner. The profits may be lesser, but in the event of a definite sum promised, they are generally risk-free. Tax advantages are also possible on specific returns, subject to specific criteria.

This illustrates why smart risk-averse investors favor low-cost endowment policies since, in addition to providing coverage for an individual’s lifetime in the instance of an unforeseen occurrence, they also pay the insured’s maturity sum if he outlives the policy tenure.

Conclusion

An endowment plan is one of the most successful tools to ensure your financial security in the future. As an investor, you are assured of the funds at the time of your death or disablement, if you meet with any unfortunate event. The money will be invested for a specified period and the interest generated at the end of it will be paid to your nominee for a particular period of time.

However, you should know that not all products of the same work similarly and there are some differences too. It is hence important to know how they work, and buy endowment policies accordingly.

Also Read: Nature and Scope of Life Insurance – A Comprehensive Guide 2023 | Health Insurance for Newborn baby in India