Everything You Need To Know About Endowment Plan

 In today’s world, a simple investment plan is not quite enough. Nowadays, people want to enjoy the dual benefits of an investment plan as well as savings under a single policy. This is when endowment plans come in handy. In this article, we will be taking an in-detailed look at endowment plans and Unit Linked Insurance Plans (ULIPs).

What Is An Endowment Plan?

An Endowment Plan is nothing but an insurance plan that provides you with the benefits of both – an insurance coverage as well as a savings facility.

With this type of insurance plan, you will be able to save regularly, which will allow you to earn a lump sum amount when the policy matures. Here, you will receive an assured sum at the end of the policy term depending on the stated terms and conditions. In case of your death, the insurance company will pay the guaranteed amount along with the earned bonus (if any) to the nominee mentioned in the policy.

An endowment plan is quite essential as it helps you financially secure your family members post-retirement. It allows you to meet the financial needs of your child’s education, marriage, and buying a dream house.

What are the Types of Endowment Plans?

There are four types of endowment plans available in the market 

  1. Unit Linked Endowment Plan 

With unit-linked plans, the insurance premiums paid are bifurcated into multiple units which are held under specific investment funds, wherein the investment funds are chosen by you (the policyholder).

  1. Full/With Profit Endowment 

With this plan, you will receive a definite amount by the end of the policy term. The amount is guaranteed to you right from the start of the policy. It is, however, noteworthy that the final amount received is relatively higher as it depends on the bonuses announced by the company, time and again. Once the bonus amount is declared, it is paid as a part of the sum assured in case of your death or policy maturity.

  1. Low-Cost Endowment 

With this endowment plan, you will be requested to pay a definite amount of funds after a specific period, usually like a mortgage.

  1. Non-Profit Endowment 

This type of endowment plan does not participate in profits generated by the company. However, to make it competitive with other insurance instruments, insurance companies often guarantee additional benefits which will help you generate returns.

Features of the Endowment Plan

Following are some of the salient features of endowment plans 

  • Death/Survival Benefits 

In case of your death, your nominee will receive the sum assured along with the earned bonuses. On the other hand, if you outlive the policy term, the same will be granted to you.

  • High Returns 

An endowment plan allows you to build a secure financial future, thus protecting you and your family members. Death and survival benefits are quite high compared to many life insurance policies.

  • Premium Payment Frequency 

The premiums can be paid depending on the type of policy you have chosen. You can pay monthly, quarterly, half-yearly, and on an annual basis.

  • Flexibility 

Add-on benefits like critical illness cover, total permanent disability, and accidental death can be purchased along with the underlying policy. Also, specific plans provide offers on the premium amount charged on total permanent disability or critical illness cover.

  • Tax Benefits 

You will be exempted from tax on both premiums paid and the amount received after policy maturity under the Section 80C and Section 10(10D) of the Income Tax Act, 1961.

Benefits of Endowment Plan

The advantages of an endowment plan are as follows 

  • Provides insurance coverage

  • Pays out a sum assured

  • Serves as a dual purpose

  • Provides tax benefits

  • Low-risk investments

  • Long-term saving plans

  • Has add-on benefits

  • Additional bonuses

Things You Need To Know Before Buying Endowment Plan

There are a few things that you need to know before buying an endowment plan 

  • Begin Early 

You should start investing early in life. It often gives you a window to grow and learn from your mistakes. Moreover, it will help you build your wealth in a disciplined manner.

  • Choose Plans with Benefits 

Many insurance companies offer extra coverage as an inbuilt feature. The additional coverage could be benefits like education endowment, double endowment policy, or a marriage endowment policy.

  • Review Options 

Certain providers also offer flexible options, like salaried individuals, can choose a regular endowment plan while people with irregular income can opt for a single payment option or limited premium payment facility.

  • Bonuses 

Bonuses are declared by your insurance company depending on how it performs in the market. So, if your provider has earned profits, he will distribute a portion to policyholders at the end of the financial year.

ULIP vs Endowment Plans

The following table compares Unit Linked Investment Plans (ULIPs) with Endowment Plans 

Criteria

Endowment Plan

ULIPs

Type

It is an insurance plan along with savings facility

It is an insurance plan along with investment facility

Lock-in Period

Usually depends on the type of endowment plan and premium payment term (between 2-3 years)

Five years

Investment Decision

You do not have the power to decide your investments

Allows you to choose the ULIP investment options that you are comfortable with

Transparency

Lacks transparency as there is no investment portfolio

With ULIP plans, the investment portfolio can be easily tracked

Maturity

You will receive the sum assured along with the bonuses (if any)

Redemption of units at the prevailing unit prices

Fund Switching

Cannot make changes to the policy

One of the ULIP benefits is that you have the option to switch the policy

Withdrawal

There are restrictions and penalties when withdrawing

You can withdraw from the policy after the lock-in period is over

Returns

Guaranteed

ULIP returns depend on the market

ULIP Calculator

Many insurance companies provide an online tool that allows you to calculate the premium amount and check ULIP returns. Depending on the premium amount you choose and the policy tenure, the ULIP calculator will calculate the returns offered by your chosen ULIP plan. Thus, with this tool, you can select a ULIP plan that yields high returns on investment and is best suitable for your needs.

General FAQs

Q: Are Endowment Plans a good investment option?

Yes. An endowment plan will provide 360-degree protection to you and your family members.

Q: Are ULIPs good to invest in?

Yes. Unlike endowment plans, ULIP plans offer market-linked investment options which can gain you relatively high returns.

Head to Finserv Markets to read more about what is ULIP and what are the types of ULIPs to get all your ULIP related queries answered.

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