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Importance of Savings

Financial planning is a constant struggle between instant gratification and long-term goals. In a consumption driven society, instant gratification in the form of unrequired purchases often takes precedence. Excessive consumption, however, can be detrimental for savings and long-term goals. Savings is the base that supports long-term happiness. 

The quantum of savings depends on one’s income and financial goals. One can set aside a larger portion of their income when one is young as the responsibilities are lesser. It also takes time to build a corpus through regular savings. A number of financial products are available in the market that can help you earn high returns from your savings. There are market-linked savings instruments that invest your money into equity or debt markets. The returns of market-linked products can be higher but the risk is higher too. On the other side, there are savings products with assured returns like an endowment policy. With investments in an endowment policy, you can plan your future goals with certainty without any risk of negative returns.

What is an Endowment Plan?

An endowment policy is a type of life insurance product that provides insurance cover along with an avenue for savings. It is a mix of insurance and investment. An endowment plan allows the life insured to save regularly for a specific period of time and pays a lump-sum amount at the maturity date. It can be used for wealth creation as well as to fulfil a long-term financial goal. If the policyholder survives the policy tenure, he/she is paid the maturity amount, however, in the case of an unfortunate death of the insured, the policy pays the sum assured.

Why Should You Invest in Endowment Plans?

Diversification of the portfolio is a tested strategy to manage investment risks. To earn optimum returns and ensure the safety of savings, one has to diversify efficiently. Investing in an endowment plan reduces the risk of your investment. It guarantees returns and can be a critical tool for managing risk. Along with investment risk, an individual faces risk to life. An endowment plan insures the financial future of one’s family, in their absence, and covers the risk to life. By investing in an endowment policy, you can eliminate investment as well as life risk through a single product.

How Does an Endowment Policy Work?

An endowment policy is a simple product. The policyholder has to opt for a tenure, such as 10 years, 15 years, etc and has to finalise an annual premium. The policy provides life insurance cover for the agreed tenure and guarantees a lump-sum payment at the end of the term. The lump-sum payment can be used to meet financial goals. Some endowment plans also add amounts known as bonuses at regular intervals, which boost the final returns from the plan.

What are the Types of Endowment Plans?

There are four types of endowment plans—unit-linked endowment plans, with profit endowment plans, low-cost endowment and non-profit endowment plan.

  • Unit-linked endowment plans: The unit-linked endowment plan is fundamentally different from other types of policies. Under a unit-linked plan the insurance premium is divided into units and invested in market-linked funds. The final return from the plan is dependent on the performance of the fund.

  • With profit endowment plan: Under the profit plan, the returns are guaranteed from the start and there are no uncertainties. The final payout from the plan is often higher due to the regular bonuses added during the policy tenure.

  • Low-cost endowment plan: These plans have been introduced with the specific purpose of helping the insured accumulate funds in a specific timeframe. A low-cost endowment plan is generally used to pay back mortgage or loan.

  • Non-profit endowment plan: A non-profit endowment plan pays a specified sum assured to the insured either as a maturity benefit or as a death benefit. There are no bonus additions meted out to the policyholder. 

Features & Benefits of Endowment Plans

An endowment plan is an essential product for the financial stability of the family. It helps in accumulating wealth as well as ensures financial stability. Let us discuss the various features and benefits of an endowment plan.

  • Insurance with investment: An endowment insurance policy always pays, in the case of the death of the insured, as well as if the policyholder outlives the policy term. If the insured passes away during the policy term, the nominee is paid the death benefit along with bonuses, if any. The insured gets the maturity benefits if he/she outlives the policy term.
  • Higher Returns: The returns from an endowment plan are higher when compared to other life insurance plans. Endowment plans also have a provision of bonuses which boost the final returns.
  • Lower Risk: The returns from an endowment plan are guaranteed and the risk is minimal. A majority of endowment plans are not market-linked and are hence unaffected by market fluctuations.
  • Premium payment term: Endowment plans have flexible premium payment terms. You can choose to pay the premiums on a monthly, quarterly, half-yearly or annual basis.
  • Tax Benefits: Investing in an endowment plan provides a host of tax benefits. The premiums paid are eligible for tax deduction under Section 80C of the Income Tax Act, while the payout is tax-exempt under Section 10(10D) of the law.
  • Flexible cover: One can enhance his/her insurance cover by opting for riders offered with endowment plans. Riders for accidental death, critical illness and total and partial disability are available with endowment plans.

The different types of riders offered with endowment plans are

  • Critical illness: An insured is liable to get a lump-sum amount through the endowment plan if he/she is diagnosed with a critical illness like heart attack, kidney failure and paralysis
  • Accidental death: If the insured opts for the rider and dies in an accident, the policy will pay the nominee an additional accidental death benefit over the death benefit
  • Disability: The disability rider pays the policyholder a pre-decided amount in case of disability due to accident
  • Waiver of premium: Under the rider, the remaining premiums of a policy are waived in case of total disability or critical illness of the insured
  • Hospital cash benefit: If the policyholder has opted for the rider and has to be hospitalised due to certain reasons, he/she will be paid daily allowances and as well as post-hospitalisation benefits

Are Endowment Plans Tax Free? How are endowments taxed?

Endowment policies are tax efficient investment tools. The premiums paid for an endowment policy are eligible for tax deduction of up to 1.5 lakh per year under Section 80C of the Income Tax Act, 1961. The amount received on the death of the insured or at the maturity of the policy is exempt from taxes under Section 10(10D) of the Income Tax Act.

Who Should Buy an Endowment Policy?

One should buy an endowment policy to systematically save for the future. It helps in accumulating long-term savings in a disciplined way. Additionally, an endowment policy offers life insurance cover. You get risk-free returns along with life insurance cover with an endowment policy. An endowment policy ensures death benefit, maturity benefit and also tax benefit.

Things to Consider before buying an Endowment Policy

Before investing in an endowment policy, you should understand what an endowment plan is. Though it is classified as an insurance product, it is used as a long-term savings tool. One should evaluate an endowment policy on several parameters before buying one.

  • Plan early: Endowment policy is a long-term product. It helps in accumulating wealth over several years. It is advisable to start early to boost final corpus as the power of compounding works over the long-term.
  • Flexibility: Payment of premiums on time is a key requisite to receive the entire benefits from an endowment policy. Before investing in a plan, enquire about the premium payment term. Policies for salaried employees have regular payment terms, while people with irregular income can avail single premium endowment plan.
  • Know the type of plan: There are various types of endowment policies. It is important to know the type of policy before opting for one. A portion of the premium is used for insurance while the balance accumulates as savings. With profit policies share a part of the insurer’s profit with the policyholder, which increases the returns. You should know if the policy is with profit or without profit before investing.
  • Opt for plans with riders: One can choose to enhance the insurance coverage of an endowment policy. You can choose a critical illness rider or an accidental death rider. Choose a policy that offers a wide variety of riders so that you can customise it as per your requirements.
  • Bonuses: Some endowment plans add to the savings by paying regular bonuses. The bonuses are paid from the profit that the insurer makes by investing the amount paid as premiums. Choose a policy that pays bonuses as they offer higher returns.
  • Non-guaranteed and guaranteed returns: Not all endowment policies guarantee returns. Some plans have a component of guaranteed returns with non-guaranteed returns. Know about the policy in detail before investing.

Endowment Plans Available On Finserv MARKETS

There are two types of endowment plans at Finserv MARKETS online. Take a look at the table below to understand the two plans -

 

POS Goal Suraksha

Guaranteed Income Goal Endowment Plan

About the policy

Bajaj Allianz Life POS Goal Suraksha allows you to build wealth and secure your savings for the future.

Bajaj Allianz Life Guaranteed Income Goal allows you to enjoy guaranteed benefits either in terms as a lump sum or in instalments.

Features and Benefits

  • Death Benefits

  • Maturity Benefits

  • Guaranteed Savings

  • Tax Benefits

  • Loan Facility

  • Income Benefit

  • Choice of Two Variants

  • Lump-Sum Benefit

  • Extended Life Cover

  • Multiple Premium and Policy Terms

  • Loan Against The Policy

Waiting Period

90 Days

No Waiting Period

Exclusions

Suicide Exclusion: If you (the policyholder) dies due to suicide within the first year of the plan or the date of policy renewal, they will receive the highest of 80% of the total premiums paid.

Suicide Exclusion: Similar to POS Goal Suraksha, if you (the policyholder) dies due to suicide within the first year of the policy, then they shall receive the highest of 80% of the total premiums paid.

You can read in detail about both these plans by visiting us at Finserv MARKETS online.

Why Choose Finserv MARKETS for an Endowment Plan

An endowment plan has a variety of benefits. But the smooth functioning of an endowment plan also depends on the credibility of the insurer. Just like other financial products, the reputation and trustworthiness of the insurer is very important in the case of endowment plans. When you buy an endowment plan on Finserv MARKETS, you can rest assured of the credibility of the insurer. Here are a few more reasons to choose the endowment plan available on Finserv MARKETS.

Instant policy issuance: It is very easy to invest in an endowment plan on Finserv MARKETS. You can purchase an endowment plan in a series of quick and easy steps online.

High claim settlement ratio: One should not forget that endowment plans are insurance products and provide life insurance cover. If your family struggles to get the death benefit in your absence, it would defeat the purpose of the plan. Bajaj Allianz Life is a trusted insurer and has a high claim settlement ratio. With endowment plans available on Finserv MARKETS, you can rest assured of a quick settlement.

Minimal paperwork: Buying an endowment plan on Finserv MARKETS is a hassle-free process and requires minimal paperwork.

Documents Required to Buy an Endowment Policy

One just requires an age proof, photograph, address proof and a correctly filled application form to invest in an endowment plan. All the documents can be submitted online if you buy a policy on Finserv MARKETS.

Claim Process

The claim process of an endowment plan is similar to other insurance products. One should inform the insurer as soon as the policyholder dies. The insurer sends a claim form to the insured after getting informed about the demise.

The claim form has to be filled and signed by the nominee or the legal heir to receive the death benefit. The doctor who last treated the insured has to provide the loss statement. Additionally, the hospital authorities have to issue a certificate. The statement of a witness who was present during cremation has to be given along with the death certificate. For speedier processing of the claim, the nominee should provide

Post-mortem certified copy, police investigation report and copy of the FIR in the event of an unnatural death.

If the insured was working in an organisation, one should submit the employer’s e-certificate.

FAQs

  • ✔️What is the difference between endowment policy and term insurance plan?

    A term insurance plan pays the nominee only if the insured dies during the policy term. Generally, there are no maturity benefits in a term insurance plan. On the opposite, an endowment plan pays a lump-sum amount at the end of the policy tenure, even if the policyholder outlives the term.

  • ✔️What is a bonus in an endowment plan?

    A bonus is an additional amount paid by the insurance company along with the sum assured to the policyholder. The amount of bonus generally depends on the profit earned by the insurer by investing the money collected as premiums.

  • ✔️Do endowment policies pay at the death of the insured?

    Endowment policies are a mix of insurance and savings. In case of the death of the insured, the nominee is paid the sum assured.

  • ✔️What are riders?

    Riders are additional coverage options provided with endowment plans. Riders enhance the coverage of endowment plans.

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