Life Insurance is a contract signed between an individual & a life insurance provider company. The policyholder pays a certain amount of premium at fixed intervals of time. The insurance company pays the beneficiaries the amount insured on the insured event, such as death or a benefit defined at the maturity of the plan.
Among the different Life Insurance Plans available, one of the most common is an Endowment Plan, which offers dual benefits of insurance & investment. Under this plan, a policyholder is required to save a certain amount regularly up to a certain period to get a lump sum amount at the time of maturity in case he survives. Some part of the premium amount is diverted towards life coverage, & the remaining part is accumulated as savings.
Features of Endowment Policy
Provided are some of the features of the endowment policy:
- Maturity Benefit
Under this plan, if the policyholder survives the tenure, a lump sum amount is received at the end of the policy tenure.
- Policy Tenure
This plan’s policy tenure ranges between 10 to 30 years, which allows policyholders to match the tenure with their financial objectives.
- Bonus
Some of the endowment policies offer bonuses depending on the insured’s performance in addition to the sum assured.
- Riders
Some additional riders, such as accidental death benefits, critical riders, etc., are also offered.
- Death Benefit
The nominees will receive financial support in the form of the unfortunate demise of the insured in terms of the death benefit.
- Premium Payment Options
This plan offers different premium payment options, such as single pay, regular pay, limited pay, etc., according to different financial scenarios.
- Loan Facility
Some of the endowment plans also offer loan facilities that are against the policy.
Reasons to Buy an Endowment Policy
Provided are the reasons to buy an endowment policy:
- Financial Security
This plan offers financial security to the family members in the insured’s absence, hence offering mental peace.
- Forced Savings Discipline
When a regular payment towards premium is made, it makes a habit of discipline in savings, leading to long-term wealth creation.
- Taxation Benefits
As per the Income Tax Act of 1961, get taxation benefits on the amount of death & maturity benefits received under the endowment plan.
- Goal Based Savings
An individual can plan his/ her savings according to the milestones of life, such as buying a property, children’s higher education, children’s marriage, retirement, etc.
- Stable Returns with Low Risk
This plan best suits those individuals who prefer a low level of risk as they offer stable returns.
- Flexibility & Customisation
This plan provides an option to customise the policy & add riders according to your convenience&requirements.
Who Should Buy an Endowment Policy?
Provided is the list of individuals who should consider buying an endowment policy:
- People Seeking Dual Benefits
Individuals looking for a combination of insurance & investments should consider buying this plan.
- Financially Disciplined Individuals
These plans provide a disciplined way to accumulate funds for the insurer’s dependents in the event of financial contingencies.
- Long-Term Savers
It can be considered by salaried individuals, lawyers, doctors, small businesses, etc., to meet long-term commitments.
- Tax-Saving Investors
It is best suited for investors who are looking for tax-free investments, as they can avail of tax benefits on the amount of premium paid & maturity benefits.
- Risk-Averse Individuals
These plans are best suited for individuals who are risk averse, i.e. who are reluctant to take risks.
Types of Endowment Plans
Provided are the different types of Endowment Plans, one can also use a Pension calculator to compare all the available plans & select the one that best suits their requirements:
- 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 or Without Profit Plans
“With profit” plans offer bonuses depending on the insurer’s performance, & “without profit plans” do not offer any bonuses.
- Full Endowment & Low-Cost Endowment Plans
The full endowment plans offer a sum assured equal to or more than the amount of death benefit at the time of maturity. Whereas the “low-cost endowments plan” offers lower premiums & is used to repay the mortgage amount.
Claim Process of Endowment Plans
Provided below are the claim processes in two different scenarios:
- Death Claim
- Notify the Insurer
The beneficiary or nominee must inform the insurance company in the unfortunate event of the death of the insured.
- Documentation
The necessary documentation should be submitted, such as policy documents, death certificates, & claim forms.
- Verification
The insurance company will then verify the documents submitted & assess the validity of the claim.
- Settlement
Once the verification is complete, the insurance company will proceed to settle the claim by making payment of the amount sum assured along with any other amount due, if any, to the beneficiary.
- Maturity Claim
- Policy Maturity
Once the policy tenure is completed, the policyholder is required to inform the insurance company about the policy’s maturity.
- Documentation
While submitting the maturity claim form, you are also required to provide policy documents & identity or address proof related documents to the insurance company.
- Calculation
The insurance company would do the calculation on the basis of sum assured & accrued bonuses, if any.
- Payment
Once the documents are verified, the insurance company will pay the maturity amount according to the policy document.
Conclusion
Endowment plans help meet long-term financial objectives by offering an individual with a combination of investment & insurance. This plan allows a policyholder to build a considerable corpus &inculcate a habit of discipline by saving regularly. Before buying a plan, one should analyse the personal requirements, financial goals, &risk tolerance.
