An endowment plan is basically a type of insurance specifically designed to pay a lump sum amount on maturity or death of the policyholder. This financial instrument can be used to create a corpus without any risks. The simple framework of an endowment plan attracts customers and helps them secure the financial future of their families.
With an endowment plan at your side, you can tackle any financial emergency. It offers returns that can help you fulfil your financial objectives, such as buying a house, your child’s education, and retirement planning. This article will help you understand everything you need to know about an endowment plan, including its types and benefits.
What is an Endowment Plan?
Endowment plans are insurance policies that help fulfil multiple objectives. It is a great way to build risk-free savings and provide protection to your loved ones. This plan helps the policyholder to save on a regular basis over a fixed period of time to enjoy the benefit of a lump sum at maturity. The maturity benefit is paid only if the policyholder survives the duration of the policy.
In case the policyholder, unfortunately, passes ways during the tenure of the policy, a pre-determined amount is paid to the nominee in the form of a death benefit. Moreover, an endowment plan can act as a financial cushion for you and your family’s future. It can help you meet short-term as well as long-term financial goals.
Types of Endowment Plans
Now that we know endowment meaning, let us talk about the different types of endowment plans. Here are the four major types of endowment plans: -
• Unit Linked Endowment Plan
Under this type of endowment plan, a portion of your premium is used to cover your life, and the rest is invested in the market-linked incentives such as equity and debt funds. You, as an investor, has the flexibility to choose the funds of your choice based on your risk-taking ability and financial objectives.
• Full Endowment Plan
With full endowment plans, the basic sum is determined at the beginning of the policy. However, the pay-out is higher than the sum insured as the bonuses are added based on the performance of the insurance company.
• Non-Profit Endowment Plan
This type of endowment plan is very similar to a full endowment plan. The sum insured remains fixed, but there are no bonuses. Instead, some guaranteed policy additions are there. These additions are given along with the maturity benefit on completion of the policy tenure.
• Low-Cost Endowment Plan
Low-cost endowment plans enable individuals to save funds for future financial objectives. These plans may include repayment of loans, debts, or mortgages.
Benefits of Investing in an Endowment Plan
An endowment plan comes with extensive features and benefits. Here are some of the key advantages of investing in an endowment plan: -
• Life Cover
By investing in an endowment plan, you can take care of your loved one even when you are not around to earn a paycheck. The life cover under this plan provides a lump sum amount that can secure your family’s financial future. A fixed amount is given to the nominee or the legal heir.
• Maturity Benefit
If you continue to pay your premiums regularly during the policy tenure, you will receive a maturity benefit at the end of the policy term. This is a guaranteed benefit that can help you meet your financial objectives. Keep in mind that the maturity benefit depends on various factors such as tenure, age, gender, etc.
• Tax Benefits
Most people know about term insurance tax benefits but do not know that an endowment plan also offers tax benefits. The premium paid towards the policy is eligible for tax deductions under section 80C of the Income Tax Act. With this benefit, you can save on your taxes.
• Loan Benefit
You can use your endowment plan to get a loan. When your policy reaches the surrender value, you will be eligible to take a policy loan. On such loans, the interest rate charged is competitive.
• Riders
You can enhance the coverage of your endowment plan by adding certain riders. It may include critical illness, accidental death or disability.
In this article, we have covered the basic things you need to know about an endowment plan. Make sure to buy the plan that suits your requirements and financial objectives.