An Endowment Plan is a combination of both life insurance coverage & long-term savings that offer assured returns. This means that in case of sudden demise of the policyholder during the policy tenure, the entire sum assured & bonus accumulated, if any, will be paid to his/ her beneficiaries. Also, this plan entitles the policyholder to receive the amount of sum assured along with the bonus accumulated, if any, if he/ she survives the policy.
Under this plan, the policyholder is required to pay a premium amount on a regular basis for a fixed tenure of the time period. Here, a part of their contribution is diverted towards life insurance coverage, which ensures financial security to the family members & partly gets accumulated towards savings.
Reasons to Buy Endowment Plans
Provided are the reasons an individual should plan to buy an Endowment Plan:
- It helps boost savings to deal with future financial obligations.
- Besides savings, it also provides life insurance coverage for the dependent family members.
- As they are risk-free investments, they offer lower returns.
- These plans also provide tax benefits under section 80C & section 10(10D) of Income Tax Act, 1961.
- These plans will suit risk-averse individuals, i.e., those who are reluctant to take risks.
- These plans also offer life insurance coverage in case of any unfortunate event.
- It also offers maturity amount to the insured in case he survives the policy.
Factors to be considered while choosing an Endowment Plan
Provided are the factors that should be kept in mind while choosing an Endowment plan:
- Sum Assured:
The amount of sum assured depends on your financial objectives, for which one should evaluate the present financial situation & future financial obligations.
- Financial Objectives:
Assess the financial objectives such as children’s education, children’s marriage, retirement, purchase of a house, etc.
- Policy Tenure:
Decide the policy tenure depends upon future financial obligations, such as children’s education, children’s marriage, or retirement.
- Frequency of Premium Payment:
Choose the frequency for payment of premium as per your convenience, i.e. monthly, quarterly, or annually.
- Bonus & Additional Features:
Check for additional benefits, if any, by evaluating & comparing different plans. One should opt for a plan that maximises benefits, making it a Best Investment Plan that leads to the creation of wealth.
- Loan Facility:
Go for an endowment plan that offers a loan facility to get a liquidity option.
- Financial Strength of Insurance Company:
Select an insurer with a financially sound background & reputation, hence building reliability & trust against death benefits.
Difference between Endowment Plan & ULIPs
| Basis of Difference | Endowment Plans | ULIPS |
| Liquidity Options | It offers limited liquidity. | It provides liquidity. |
| Investment Component | This plan offers guaranteed returns & builds corpus funds. | This plan invests in debts, equity, or balanced funds. |
| Long-term Wealth Creation | It helps building a corpus of funds over a period of time by focusing on savings. | This plan basically caters to the long-term creation of wealth. |
| Market-Linked Returns | This plan offers guaranteed returns, protecting against the volatility of the market. | It has the potential to provide higher returns, subject to market-related fluctuations. |
| Legacy Planning | Via guaranteed payouts & maturity benefits. | Via investment growth. |
| Flexibility in Investment | There is limited flexibility. | It provides an option to switch between the funds, depending upon the risk tolerance level & market conditions. |
| Insurance Coverage | It only offers life insurance benefits. | This plan includes life insurance benefits along with investment benefits. |
| Tax Benefits | It offers tax deductions u/s 80C & Sec 10(10D) on the amount of premium paid & maturity benefits received. | It offers tax deductions u/s 80C & Sec 10(10D) on the amount of premium paid & maturity benefits received. |
Types of Endowment Plans
Provided are the different types of Endowment Plans:
- Traditional Endowment Plans
These plans are the basic & simplest version of endowment plans, offering a guaranteed sum in addition to accrued bonuses, if any. They have low risk & stabilised returns, hence suitable for conservative investors.
- Unit-Linked Endowment Plans
This plan provides a combined benefit of insurance & investment in equity & debt funds. The return on investments is directly linked to the market, i.e. the more risk, the higher the returns.
- With Profit
“With profit” plans offer bonuses depending on the insurer’s performance, i.e. it offers life insurance coverage & profit share. This leads to wealth creation along with financial security.
- Without Profit Plans
These plans do not contribute to the profits of insurance companies, i.e., they include only a fixed amount of sum assured. These plans will suit risk-averse individuals well, offering them stability & guaranteed returns.
- Money Back Endowment Policy
This plan offers liquidity throughout the policy tenure by providing a regular payout periodically. Hence, it helps meet the different life stage requirements, & the maturity amount is also secured.
- Full Endowment & Low-Cost Endowment Plans
The full endowment plans offer a sum assured equal to or more than the death benefit at the time of maturity. Whereas the “low-cost endowments plan” offers lower premiums & is used to repay the mortgage amount.
Steps to Buy an Endowment Plan Online
Provided are the steps to be followed to buy an Endowment Plan online:
- Visit the insurer’s website to choose the desired plan.
- Provide some basic details, such as age, gender, contact number, name, DOB, etc.
- After a quote has been generated, opt to pay online.
- Fill out the proposal form after submitting the required documents.
- The policy will be issued once the documents are verified.
Limitations of Endowment Plans
Provided are the limitations of Endowment Plans:
- Lower Returns
These plans primarily focus on guaranteed benefits & security rather than returns, hence offering lower returns in comparison to other investments.
- Higher Premiums
They need higher premium amounts in comparison to other term plans, which may be expensive financially.
- Limited Flexibility
These plans offer rigid terms & conditions, hence restricting flexibility in premium or coverage amounts.
- Long-Term Commitments
It is a long-term product, hence requires commitment where early exit may result in losses.
Conclusion
Endowment plans offer dual benefits, i.e., investment benefits along with insurance coverage, financial safety, long-term savings, tax benefits, & the ability to help achieve financial objectives.