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Is an endowment plan a good choice? For whom and why?

Endowment plan:

Endowment plans cover an individual’s life incase of an unfortunate event and also offer a maturity benefit at end of policy term.

An endowment policy allows you regular savings over a period of time which you can enjoy at the end of the term.The life cover attached provides financial security to the family members in case of demise of policyholder. 

An endowment plans can fulfill all your long term goals like:

  • Child’s education
  • Child’s marriage
  • Buying a property
  • Retirement planning

Endowment plans are the most suitable investments in your financial bucket. Endowment plans help in wealth creation and build a good corpus to serve all your life goals. 

After understanding the meaning of endowment plan,let us now see why endowment plan is for you?

  • Long term horizon: If you have sufficient time period then you should buy an endowment plan.Endowment plans are idle for the ones who are looking for a medium to long term investment.Patience is the key to building a good lumpsum amount in any endowment policy. In the long term you see the power of compounding for wealth creation. The longer you are invested, the more returns you will get.
  • Low risk takers: Endowment policies work for the ones who do not want to directly invest in the markets. Endowment plans invest majorly into the debt instruments with a very small portion in the equity. Also, considering the time horizon endowment plan can never fetch negative returns.These plans suit all the age groups , from a kid to an individual in his 50’s. Slow but a steady growth helps in building a huge corpus till the end of policy term. If you are a low risk taker then this is the best plan for you.
  • Life Stage:  Life stage plays a very important role in endowment plans. It is always recommended that you should buy this plan at an early age to meet your mid -life goals and lately at 45-50 age to plan for your second innings of life. Endowment plans are systematic investments that allow you to save regularly and withdraw a huge corpus at maturity. Planning to buy an endowment policy at an early age will help you save money, maybe for buying a house, fulfilling your child’s education needs, planning for higher education for kids, marriage of children etc. Different life stages are aligned to different life goals and buying an endowment policy will meet one.
  • Financial Security Shield: Endowment plans give double benefit of insurance and investment.It allows you to save for fulfilling all the investment needs and meet your financial goals. The endowment plan also provides life cover to secure the future of family members. Incase of demise of the policyholder the family members get the basic sum assured as mentioned in the policy. The family members can continue living the same life even in your absence. If you want to safeguard the future of family members, an endowment plan is for you.
  • Tax Saving: Endowment plans reduce the tax burden. Endowment plans are covered under section 80 ( C ) of income tax act 1961, and also give a tax free maturity in the hands of investors at maturity. So if you are willing to invest and save tax then endowment plans fulfill your requirements. You can claim deductions under section 80 ( C ) by investing in endowment policy. A tax free maturity will capitalize the returns on investment.

Benefits of endowment plan:

  • Flexible premium payments: Endowment plans allow you to pay premiums as per your convenience. The available payment modes are monthly, quarterly, half yearly and yearly. This makes life easy in terms of accumulating funds without disturbing your ongoing savings. Investing in parts on a regular basis will help you save more. 
  • Liquidity: There are different types of investment plans in the market. Majority of them come with a medium to long term horizon. But there are plans which come with immediate income starting at the end of the year from the policy commencement date. Money back endowment policies offer you timely cashback. Timely inflow of the money into the account will help you meet your day to day requirements. Money back at periodic intervals acts as passive income for you.
  • Bonus: Endowment plans are two types, participating endowment plan and non participating endowment plan. The participating endowment plans directly participate in profit and loss of the company and non participating endowment plans do not participate in any share or surplus of the company. Both plans come with a guaranteed bonus at the end of the policy term. This will give a booster to wealth accumulated and enhance your funds at maturity.
  • Riders: Endowment plans come with additional riders on the investment. The riders provide additional security to the investor besides wealth growth and life cover. The riders include accidental death benefit and disability rider,permanent disability rider,critical illness cover, regular income, waiver of premium etc. Riders come at a very nominal and affordable cost which saves your money to buy an additional policy.
  • Loan facility : The policyholder can avail loan when the endowment policy has acquired its surrender value. 85% of the loan can be availed for paid up policies and 90% loan for policy in force. The loan against policy is very popular and attractive abroad. Loan against policy is beneficial to the investor because of low interest rates, quick disbursement, few chances of rejection and low interest rates. This makes it easy for the investor to arrange funds in an emergency without disturbing the investments.
  • Married Women Property Act: Married Women Property Act 1874, is legal instrument to safeguards the married women interests in India. Attaching the MWPA act to the insurance policy protects the women to keep the family members, siblings,debtors away from touching the benefits from any life insurance. No one can challenge the rights in the policy under this Act. MWPA protects the financial interest of a married woman along with the child.In early days endowment and term plans had the MWPA benefit but now few ULIP policies come with the similar benefit.

Conclusion:

With changing times, awareness among the investors have increased drastically. This is mainly due to the digital reach and ready information available across search engines.While there are a lot of investment options available in the financial markets, endowment plans still remain the oldest and most popular investment among all age groups. Endowment plans develop regular savings and are safe to invest. To live a peaceful life, it is important to achieve all the milestones as and when they come. To achieve them you require a lump sum of big money. To build big money you need to give time and watch it grow. 

That is why endowment plans are best for you!

To know more about endowment plans visit here.

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