5 things to know before purchasing an endowment policy
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There are many different types of life insurance products that offer uniquely different benefits and coverage. An endowment policy is a type of life insurance that offers a lump-sum at the end of the policy term or on death. Endowment policy terms range between 5 years and can go all the way up to 28 years; or the upper age limit of the policyholder. Endowment policies are available in two types: with-profit and without-profit. A with-profit endowment policy usually involves a sum-assured payment at the end of the term plus additional bonuses, whereas the without-profit guarantees only the sum-assured.
There are a number of benefits that are associated with an endowment policy. Before you purchase a new policy, it’s important to weigh-in the pros and cons and, more importantly, see whether it meets your financial goals. This article will highlight five major benefits of an endowment policy.
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Life Insurance with Guaranteed1 Benefits
The endowment policy is essentially a life insurance policy with a saving component and lump sum maturity benefit. This essentially means that you kill two birds with one stone. The policy will allow a policyholder to accrue a large corpus of funds at the end of the term. And in the event of death, their nominee will receive the sum assured amount.
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Higher Returns with Market Linked Investments
If you have a hunger for stronger returns and an appetite to take on more risks, you should consider Unit Linked endowment plans. Like most market-linked investment options, the Unit Linked plans are solely dependent on the market performance of the fund. Various studies on trends linked to Unit Linked plans, showed an average return of 9.4%3, which is a good return on investment.
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Premium-payment Frequency
The policyholder has complete freedom when it comes to premium payment frequency. Premium frequency can be chosen at the start for the policy term. Most endowment plans have payment plans that range from monthly, quarterly or annually. The premium-payment frequency should be decided keeping in mind affordability and your budget. If you feel that you can't make a lump-sum payment annually, then you have a choice between quarterly or monthly premium payments.
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Enhance your Coverage
Endowment policies offer flexible coverage that can enhance protection of the insured. These are in the form of riders like critical illness, total permanent disability, and accidental death that can be added to an existing policy. The enhanced flexibility means that you can alter the policy as per your requirements at any time during the policy term. Keep in mind, adding riders will increase your policy premium, its best to calculate your premium before going in for additional cover.
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Income Tax Benefits
Any premiums paid qualify for tax exemption under section 80C of the Income Tax Act. Additionally, the policyholder enjoys tax benefits2 at the time of maturity or death benefit pay-out qualify for tax exemption under section 10(10D).
Conclusion
Endowment policies offer a number of benefits that are hard to ignore. If you are just getting started in your investment journey, endowment policies are a great place to get started. Make sure you go over various savings insurance plans that are designed to provide extensive coverage and are aimed towards building a healthy corpus of funds.
1 Provided all due premiums are paid.
2 Tax benefits are subject to changes in tax laws. Kindly consult your financial advisor for more details.
3 Source: https://www.policybazaar.com/life-insurance/ulip-plans/articles/ulip-funds-returns/
ADV/3/21-22/2513
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