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What is a Endowment policy?
The concept of life insurance is simple. Life insurance provides a lump sum payout to the policyholder’s family after his/her death. An Endowment plan works the same way, except it provides a lump sum payout when the policyholder survives until the end of a specified endowment policy term or survival term. Payouts’ clause differs with different policies – some pay when diagnosed with a critical illness or other life-altering events. Policy buyers must read and understand the complete terms and clauses regarding payouts before purchasing the policy.
Features and Benefits of Endowment Policies
Features
Benefits
How do Endowment Policies work?
Endowment Policies are considered an extension of insurance policies. Apart from the insurance part, it also acts as a long-term investment option. Endowment policies cultivate the habit of saving for building a long-term financial corpus. Once the policy has matured, the policyholders will receive a lump sum payout from the insurance company along with the bonus if they have survived the policy term. The policyholder can use such funds for various purposes like building a house, marriage expenses, or even as a retirement corpus.
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Who Should Buy an Endowment policy?
The decision to buy an endowment policy entirely depends on your financial goals. You should clearly define your financial objectives, insurance goals, and risk appetite before choosing an endowment plan. For example, suppose you are a young individual who requires life insurance cover while also looking for an investment scheme with tax benefits. In that case, you can either opt for a combination of two instruments (life insurance policy and investment scheme) or choose an endowment policy that offers dual benefits of insurance and investment. If you are not opposed to risk-taking, you may very well purchase an equity mutual fund, which is dependent on capital markets and has a potential for a higher return. Endowment policies are an ideal investment tool for those who are averse to risk as it combines the best of insurance and investment. An endowment policy is less risky than a mutual fund. At the same time, it also has ULIP options that invest in various equity and debt schemes. Aside from providing life insurance coverage, endowment policies also offer a lump sum payout to the policyholder on policy maturity, if the policyholder has survived the endowment term. Moreover, it is an excellent tax-saving instrument, as well. All said, it is always wise to consider your risk appetite before making any major financial decision.Different types of Endowment policies available at present.
Under Unit Linked Endowment Plan the insurance premiums are directed through multiple units held under a specific investment fund that the policyholders choose.
With this plan, the basic sum assured will be provided to the policyholder. However, the final payout is significantly higher based on the bonus accrued. It varies from company to company.
This type of plan allows the policyholder to accumulate funds which have to be paid after a specified period.