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What is an Endowment Policy and Features of an Endowment Policy?

Author: Madhura Raghuvanshi
by Madhura Raghuvanshi
Posted: Apr 04, 2018

Looking at securing your future and making an investment? Have you been thinking about it for too long? Here’s a plan that gets you the best of both worlds. Opt for an endowment policy today and enjoy its long-term benefits.

What is an Endowment Policy?

An endowment policy is a double dose of insurance and investment at the same time. It falls under the life insurance bracket as it offers a sum of money for a specified period of time either over maturity of the term or upon death of the policy-holder. If the insured dies before the maturity of the plan, then the nominee becomes eligible to receive the sum assured along with the bonus if any from the insurance company. At the end of the term, it helps you reap the benefits of both insurance and investment. In an endowment policy, an assured sum at the end of the period or upon maturity is guaranteed. However, it depends on the type of endowment plan you take, low-cost, money-back, child endowment plan, with profit or without--profit endowment plan.

Benefits of Endowment Policy

Think of the end-goal, plan your present and invest for the future to lead an idealistic life. Listed below are the merits of endowment policy. Outweigh any doubts you may have in your mind:

Goal-based savings:

Different people have different financial goals and varied means of achieving them. If they don’t have a very good financial backing, they can certainly rely on an endowment policy as their savings. Buying an endowment policy works wonders for one’s future. In case the sole earner of the family passes away, rest assured, his family will get the amount to maintain their lifestyle as long as he has taken up an endowment policy of any sort.

Tax benefits:

There are different ways of saving taxes and an endowment policy is one of them. It helps you in getting tax deductions on salary. Finally, the sum you get at the time of maturity is tax-free. The premiums that are paid for this policy are deducted from the taxable salary. This is done up to a maximum slab of INR 1.5 lakhs annually under Section 80C of the Income Tax Act. Moreover, in case of death, the amount that the family receives is tax-free under Section 10(10D) of the Income Tax Act.

Loan:

The amount that is finally received can be used by the insured person in many ways right from the marriage of their child or education to buying a property or clearing a loan. While some people take it for fulfilling some long-term investments, the others solely take it for securing their future.

Bonus:

A bonus is an added advantage in certain endowment plans. This holds true if the plan is unitised with profit. In that case, the value of the units is calculated annually. The profits are given in the form of bonuses. Depending on the classification of the bonus, there are certain conditions that are specified by an insurance company. These bonuses can broadly be classified as:

  1. Reversionary bonus: This refers to the additional sum of money along with the sum assured that one gets at the time of maturity of the plan or on death. Once again, the emphasis is on endowment with profit policy holders only.
  2. Terminal bonus: This type of bonus is in sync with the one mentioned above but is unrestricted. This means that the insured person is free to modify or make changes to the amount of bonus as per his choice. In this case, it emphasizes on bonuses not declared by the company on the spot, but annually.

Non-Guaranteed Lump Sum Return:

An endowment policy helps you in accumulating wealth plus building cover for your life. In some cases, the returns may be lower if the policy is not affected by market risks. On the other hand, there are plans like that of Full Endowment where the final amount given to the insured person might be higher than the assured sum. In such cases, the risk is high, but the investment is worthwhile.

Enable long-term savings:

Saving in this policy is like saving for an assured benefit that is offered to you at the end of the term. It instils discipline and helps in saving a dime at a time and investing it towards a secure tomorrow. Not only does it offer peace of mind, but a back-up plan in case of a financial crunch in the future.

Conclusion

Hope the benefits of this traditional policy have lured you into taking it up. It is important to check the amount of premium for the plan you are planning to invest in. You must also keep a tab on the financial standing, claim settlement ratio and customer service provided by the insurer. As long as the flow of income is steady and the premiums can be paid, these plans help in building a corpus for fulfilling an investment objective. You can scan through the options available online and choose the one that best suits you. Hop on to Coverfox.com to compare the offers from different insurance-providers and get unbiased advice from the insurance experts.

About the Author

I am Madhura, I have total 10 yrs of experience in this mutual fund, Insurance world. with the sound knowledge of elss funds

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Author: Madhura Raghuvanshi

Madhura Raghuvanshi

India

Member since: Apr 04, 2018
Published articles: 2

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