Is Buying an Endowment Plan a Good Idea?

Is Buying an Endowment Plan a Good Idea

Life insurance is a critical part of investment planning. While selecting the right investments is important, it is also critical to ensure you back them up. A handy way to back up your investments is by using a life insurance policy. In the unfortunate event that a policyholder dies, the insurance company will compensate the dependents with the sum assured of the insurance plan.

While pure life insurance plans (term insurance policies) pay out only death benefits, insurance plans have also started to be used as a means of investment. There are many plans that help to achieve the joint objectives of investment and insurance. One such policy is the endowment plan

An endowment plan combines the protection and savings goals of an individual into one insurance policy. Here, the premium is attributed towards protection for the life of the policyholder, as well as accumulating a corpus that is paid at the end of the policy tenure. An endowment plan also pays the maturity benefits which can be used by the policyholder to meet personal financial goals.

Here are some of the benefits of buying an endowment life insurance cover –

  1. Protection for your life

The primary advantage of buying an endowment life insurance plan is the coverage for your dependents. In the event of an unfortunate demise of the policyholder, the family is financially burdened, which is even more so, if the policyholder is the sole breadwinner. Hence, an endowment plan by way of its death benefits provides a sum assured to the nominees that can help them against financial worries that surround the death of a family member. 

  1. A disciplined approach to savings

The premiums in an endowment plan are divided into two parts — one for insuring the life and the other for savings. As these premiums are required to be paid at specified intervals (monthly, quarterly, half-yearly or annually), it inculcates a habit of savings for the policyholder. This savings component helps to accumulate the maturity proceeds which can be used to meet your future financial goals.

  1. Bonus in payout

Along with offering maturity proceeds after the policyholder outlives the policy tenure, an endowment policy also offers a bonus. This bonus amount is paid in both situations — on the death of the policyholder along with the death benefits, as well as at the time of maturity proceeds being paid to the policyholder. Thus, in every situation, the endowment plan incentivises an additional amount by way of a bonus.

  1. Achieving life goals

The maturity benefits of an endowment plan can be used to meet your future financial goals. Since it is generally a lump sum payout, this amount can be used in buying a house, funding your child’s education, or even forming a part of your retirement corpus. Besides that, it can also be used to keep aside as surplus funds that can aid during times of medical emergencies or even pay for your routine expenses during your golden years.

  1. Tax benefits

Other than providing protection and savings, an endowment plan can also be used as an instrument to save on some taxes. The premiums for these plans are deductible under Section 80C of the Income Tax Act, whereas the maturity amount is also exempt from tax under Subsection 10D of Section 10

Who should opt for an endowment policy?

Among the myriad types of life insurance policies, an endowment plan is suitable for those who have a regular stream of income and require a lump sum amount after a specified period. These policies have a disciplined way by which savings can be accumulated in times of an emergency. Small business owners and salaried people can take advantage of this policy to meet long-term financial goals.

Further, individuals who are risk-averse and want a guaranteed return on their investment can opt for an endowment policy. Based on their requirements, there are different types of endowment policies to choose from. A life insurance calculator is a nifty tool that helps in deciding which policy checks the right boxes for you. Those who can assume a high risk for higher returns can take advantage of the other types of policies that are sold.

Leave a Reply