Ch. 2: Why You Should Invest in Endowment Plans?

Life is beautiful, but oh-so-challenging. Our daily newspapers are riddled with all sorts of negative headlines — ever-rising inflation, job cuts, spiralling living costs, among others. And every morning, we wake up and realise how important it is to financially protect our family’s future, in order to remain unfazed by such situations.

You must have grown up hearing that savings is an invaluable way to safeguard life. It helps in accumulating your money systematically, and over time, creating a pool of wealth that can be used to fulfil long-term goals and dreams.

Our childhood lesson has always proved to be true. But an Endowment Plan makes it even better. As we discussed in the last article, an Endowment Plan is a low-risk savings tool that also gives you the benefit of insurance. It lets you invest, as well as gives you the safety net of insurance, all under a single roof.

But before making any choice, make sure the benefits align with your specific needs and requirements. So is this plan a good idea for you? Let’s find out!

1. You are looking for a lump-sum amount after a certain time to cater to your long-term goals

An Endowment Plan provides you a lump-sum payout when the policy matures. You are just required to pay premiums for a limited time in exchange for long-term benefits.

For instance, your son is going to get married in a few years and you would like to make it an event to remember. Since there will be a lot of expenses and stress involved in the big fat Indian wedding, you can invest in an Endowment Plan beforehand. The lump-sum amount you receive at maturity will take care of those heavy expenses, while you cherish the big moment.

As compared to other investment options, an Endowment Plan is a relatively safer choice. In contrast with mutual funds and other devices that are directly affected by stock market fluctuations, Endowment Plans build a risk-free savings fund, and offer guaranteed returns as a lump sum in the form of either a death benefit or maturity benefit.

This policy offers you a disciplined route for savings. You need to pay the premiums either monthly, quarterly, half-yearly or annually, according to the terms and conditions of your policy document. This will get you into a habit of saving money, and the premiums you pay will result in a much higher return. Rather than keeping your money standstill in the bank or spending it extravagantly, with an Endowment Plan, you get to preserve your precious wealth and make it grow.

Every earning member has responsibilities towards their family. A sudden demise will prevent you from meeting those commitments and keeping your loved ones safe. With an Endowment Plan, you can design your future as need be. It provides your nominee with a Death Benefit, so in case of your untimely demise, your family members don’t have to suffer financially. Your loved ones can continue living a safe and comfortable life in the future, even in your absence.

Whenever you buy insurance, it’s not for yourself. More often than not, it is to cover for needs beyond your own. An Endowment Plan looks after your loved ones and ensures their financial stability. It is an expression of love that you leave behind.

With the guaranteed returns it offers, an endowment plan helps you accumulate a secure fund that will take care of the needs of your family, even when you are not around.

For example, Manoj is 55-year-old and has two children, aged 18 and 21. He has already invested heavily in Mutual Funds. He now wants to accumulate a secure, risk-free fund (that also saves taxes) purely to leave behind a legacy so that both of his children can lead a happy, comfortable lifestyle. In such a situation, an Endowment Plan would be a good option for him to discuss with his financial advisor.

One of the best reasons to invest in an endowment policy is to reduce your tax liabilities. Premiums and payouts are exempted from taxation under the Income Tax Act, 1961.

• Premiums, up to 1.5 lakhs, are exempted from taxation under Section 80C.
• Payouts made to you or your nominee are exempted from taxation under Section 10(10D)¹.

Financial goals can look different for different people. For some, the goals may include their child's education or wedding, and for others, buying property or simply using it to enjoy a good post-retirement life. Whatever your reason may be, with an Endowment Policy in place, you can fulfil all your financial requirements. The benefits offered by endowment plans will be discussed in more detail in the next chapter.