I know many of you don't know about this all so before investing in it let's get detailed information about the endowment plan.
What is an Endowment Plan?
An endowment plan is a type of life insurance policy that provides a policyholder with insurance cover for the life of you or your loved ones as well as a saving plan to make money as the plan matures over time if the policyholder remains alive according to the policy plan.
It is a wealth-creating and money-saving plan if the policyholder survives till the plan expires the fellow get assured with sum according to the plan if by chance he/she is not a life the sum is assured to the nominee by the life insurance company in many cases to the family members which can be in use for future expenses for the children or family.
It is also known as an all-rounder plan because it covers a lot in it such as financial protection, helps to invest and create wealth, saving money for the future expenses of the family, tax-saving and assured sun with bonuses, and much more.
How does an Endowment Policy Work?
Endowment plan provides the life cover as other life insurance plans cover but the additional features in it are they allow the policyholder to save their savings for the future, can invest in it to generate profit also with a life cover.
The premium is paid by the policyholder at a regular interval which once matures Upon the given terms and conditions the policyholder gets paid with lump sum amount in a single transaction.
The amount received by the policyholder can be made in use for the higher education abroad for children, marriage, and other future expenses.
Types of Endowment Policy
Hope you have got a basic idea of what is endowment plan? now let's have a look at different types of endowment plans.
There are four types of endowment plans as follows:
Full/with Profit Endowment
Non- Profit Endowment
Low-Cost Endowment
Unit Linked Endowment
Also Read: Top 10 Life Insurance Companies in USA 2022
Full/ with Endowment Plan
It is also known as with-profit endowment. In the types of endowment plan, the sum i.e. amount is assured to the policyholder at the starting of the plan, and at last, the final payout gets increased as compared to the beginning sum as it is combined with the bonuses ( profit generated by the company ) announced time to time by the insurance company which becomes a part of policy and paid to the policyholder after maturity.
Non-Profit Endowment
In a non-profit endowment, the amount is paid to the policyholder or nominee at the time of maturity with doesn't include any bonuses ( profit generated by the company ) i.e. the sum is unchanged. These are Full guaranteed in nature to create better returns for the policyholder.
Low-Cost Endowment
The main motive of a low-cost endowment is to collect the funds in a special period of time range which is to be paid after a period of time or for loan repayments.
The premium of this plan is lower than any other plan and gets bonuses after retirement age.
Unit Linked Endowment
In this plan, the premium is used to purchase investment funds units in the fixed term plan which can be chosen by the policyholder. It also covers the life insurance for the covered person.
Features of Endowment Policy
Before buying the endowment plan one much know its features of it.
Life Cover
If in case the policyholder is not alive the lump sum amount is paid to the nominee of the policyholder.
Maturity Benefits
After the completion of the tenure of the plan, the policyholder gets paid with the amount assured as maturity benefit which creates an opportunity to invest and create more financial resources.
Dual Purpose
It serves dual benefits for the policyholder by providing Ife insurance cover and investment options to create wealth and save money for your young ones.
Guaranteed Addition
Guaranteed additions are provided after the premium payout term ends by the insurance company.
Death Benefit
If the policyholder passes within the period of plan the amount is paid to the nominee by the insurance company which could help their family for future expenses.
High Returns
The returns provided by the endowment plans i.e. death benefit or maturity benefit are much higher than any other life insurance policy.
Low Risk
Endowment plans are considered to be safe because the sum is not invested in the stock market or mutual funds, that is why it is safe than ULIPs or the stock market.
Tax Benefits
Under section 80C and Section 10(10D) of the income tax Act, 1961 the policyholder gets the tax benefit for the endowment plan and maturity benefits.
Flexibility in Cover
This feature allows the policyholder to add customizable riders (add-ons) to their plan such as Waiver in premium, critical illness, accidental death, total permanent disability, etc.
Premium Payout Frequency
According to this, the policyholder can do payments according to the plan or the frequency of the premium can be chosen by the policyholder such as yearly, monthly, regular, quarterly, etc.
Benefits of Endowment Policy
Dual Purpose Function
It functions as a dual purpose as providing a life insurance cover and a long-term investment for the investors.
Tax Benefit
Under section 80C and Section 10(10D) of the income tax Act, 1961 the policyholder gets the tax benefit for the endowment plan and maturity benefits.
Life Insurance Cover
An endowment plan provides the life insurance cover with a lump sum amount after claim settlement which might be used for future expenses.
Low-Risk Investment
Endowment plans are considered to be safe because the sum is not invested in the stock market or mutual funds, that is why it is safe than ULIPs or the stock market.
Extra Bonus
The bonuses are often categorized as Reversionary Bonus and Terminal Bonus which are additionally added by the insurance company within the plan on maturity or after completion of the term.
Riders
These options allow the policyholder to feature customizable riders (add-ons) to their plans such as Waiver in premium, critical illness, accidental death, total permanent disability or partial disability benefit, etc.
Savings for Future
This allows the policyholder to save lots of their savings for the long term which might obviously be used for the future education of the children, marriage, or hospitalization.
How is the Premium Calculated in Endowment Plans?
In an endowment plan, the premium is calculated on the idea of age, payment method, term and sum assured, etc. The premium is split for sum assured, administrative costs, and the rest for investment. This invested amount is employed to generate profit or bonuses in percentage which are offered within the plans over time.
Here the how you can calculate premium in an endowment plan
Things to know before Buying an Endowment Plan
Here are some things which are to be considered before buying an endowment plan.
✔ Financial planning
✔ Plan with Riders
✔ Affordable premium
✔ Returns
✔ Bonuses
✔ Claim settlement ratio
✔ Flexibility options
Documents required to apply for an Endowment Policy
✔ Photograph
✔ Age proof
✔ Address proof or residential proof
✔ Proposal form
How to Buy an Endowment Plan online?
Here are easy and straightforward steps to buy an endowment plan online with any life insurance company.
Step 1: Visit the official website of the insurance company of which you wish to buy an endowment plan
Step 2: Heads to plans section
Step 3: Choose the plan accordingly to your need
Step 4: Fill out the details such as name, age, gender, date of birth, address, phone number, etc.
Step 5: Once the basis details get filled opt for payment
Step 6: Choose the payment method and pay it online
Step 7: Fill the proposal form with genuine proof such as a photograph, age proof, residential proof.
Once all the documents get to submit the company verifies the provided documentation and may issue the policy.
This is how you can buy an endowment plan for you for your loved ones.
Best Riders for Endowment Policy
Accidental death
If the policyholder isn't alive due to accidental death then the insurance company pays the accidental death to the beneficiary.
Hospitalization benefit
If the policyholder is hospitalized or laid low with critical illness then the policyholder will get a percentage of the base lump sum amount.
Disability
In this, the policyholder will get total or permanent disability benefits after the claim approval.
Critical illness
If the critical illness claim is accepted, the policyholder will get a lump sum amount. It is only benefited when a consultant physician confirms the illness
Walver of premium
By adding this rider if the insured get suffered from critical illness or any mishap he/she is not liable to pay the premium for this policy.
10 Things to Consider before Buying an Endowment Plan?
There are thousands of life insurance companies providing different types of endowment policies but before buying the best endowment plan one must check for the need to buy the plan, income, risk appetite, etc.
Here are some things to be considered before buying an endowment plan
✔ Analyzing financial needs
✔ Go for the best plan
✔ Affordable premium
✔ Check the background of the insurance company
✔ Bonuses
✔ Available riders
✔ Terms and conditions
✔ Policy loans and policy withdrawal benefits
✔ Claim settlement ratio
✔ Profitable returns
Frequently Asked Questions
Is an endowment plan a good investment for me?
Endowment plans are good investment plans because they offer the insurer to invest for the long term and also a beneficiary in saving money and generating an honest return over an extended period of time.
Does the endowment plan offer low risk?
Endowment plans are considered a low-risk investment, which helps you to invest your money for the long term and generate good returns. It is considered safe because the money is not invested in the stock market or mutual funds.
Can I buy an endowment plan online?
Yes, obviously you can buy an endowment plan online through the official website of the insurance company or you can visit the company branch near to you.
What are the documents required to apply for an endowment plan?
Documents required to apply for an endowment plan are as follows
✔ Photograph
✔ Age proof
✔ Address proof
✔ Proposal form