It might be difficult to plan for your financial future when you have to balance the demands of safety and savings. Endowment plans provide a clever approach by integrating these two crucial elements into a single policy. Whether you aim to prepare for retirement, pay for a child’s education, or ensure your family’s future, an endowment plan can assist you in reaching your financial objectives while offering the assurance of life insurance coverage.
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In this blog, we’ll break down endowment plans, explain what are endowment plan premiums, and show how they can help you save and secure your financial future.
What Are Endowment Plans?
An endowment plan is a life insurance policy that gives protection on the life of the policyholder apart from creating a saving in the long run. The maturity benefit is paid to you on the date of the policy term end; it is a one-time payment. This payout can help you fulfil your financial obligations such as buying a home, financing a college education, or creating a retirement nest.
For the policyholder, in the unfortunate circumstance that the policyholder dies during the policy period, the insurer pays the sum which is assured to the beneficiaries to cater for the financial needs of the family. In other words, endowment plans provide cover and savings; therefore, it is suitable for those with financial needs that will come in the future, and they require a lump-sum sum to manage.
Types of Endowment Plans
Before we dive into the details of what are endowment plan premiums, it’s important to understand the different types of endowment plans available:
- With-Profit Endowment Plans:
These plans have inbuilt guaranteed benefits and bonuses the insurer promises upon a particular fiscal year’s performance. The bonuses can involve simple reversionary bonuses and terminal bonuses in which one is added to the final payout.
- Without-Profit Endowment Plans:
As the name depicts, these plans have assured amounts of payment but fail to consider any sort of bonus. It is an agreed amount which remains unaltered throughout the policy period and does not fluctuate.
- Unit-Linked Endowment Plans:
These plans help an investor to make investments in Equity, Debentures and other funds based on the risk profile of the investor. The returns of these plans are market related and payment at maturity is realised from the selected funds.
- Full-Endowment Plans:
The payment of these plans is however more than the sum assured as bonuses and profits which are taxed are expected to be added during the policy period.
How Do Endowment Plans Work?
The way endowment plans operate is that the insurance company invests the premiums you pay on a monthly basis. The life insurance component of these payments is deducted, and the remaining amount is put in low-risk products like bonds or government securities to increase your savings.
The insurer distributes the maturity benefit, which may consist of the whole insured amount plus any accrued bonuses, at the conclusion of the insurance period. Your family will get the death benefit if you die away within the policy term; this benefit is usually greater than the sum guaranteed because of the bonuses or investment returns that have been added over time.
Now that you understand how endowment plans work, let’s explore what are endowment plan premiums and how they impact your policy.
What Are Endowment Plan Premiums?
Policy premiums you pay for an endowment plan mean the contribution you make for the longevity of an insurance policy. These premiums are arrived at based on your age, the sum assured, policy term and any attached riders that one may have elected to take. The premiums can be paid in instalments daily, weekly, monthly, quarterly, half-yearly, or annually depending on the policyholder’s ability to pay and the company’s schedule for payment.
In this regard, it is imperative to understand the endowment plan premiums are relatively higher than the pure term insurance premiums. This is so because, while the endowment plan is both a life covers and savings product, the term insurance solely provides life cover. Some of the premium paid is reinvested in low and stable returns yielding assets to grow the value of the policy over time.
When selecting an endowment plan, we need to consider how much in premiums you should contribute and if you can afford such a contribution in the long run. Most insurers have free tools available on their websites where you can get an idea of the likely premiums that your chosen policy will attract based on factors such as your needs and goals.
Benefits of Endowment Plans
Now that you understand what are endowment plan premiums, let’s look at the key benefits of endowment plans and why they’re worth considering:
- Dual Benefits:
While there are numerous benefits to endowment plans, probably one of the most significant ones is that they are recognised as life insurance policies that contain a savings feature. You not only guard your family against any form of financial loss but also build good savings over a period of time.
- Guaranteed Maturity Benefit:
Endowment plans pay a certain amount at the end of the policy period, which can be useful when paid to achieve some purpose. This maturity benefit is possibly one of the key factors that make people prefer endowment plans over the rest of the life insurance plans.
- Bonuses and Add-Ons:
If you go for a with-profit endowment plan, you will get annual bonuses declared by the insurance company. These bonuses raise the total compensation to be made, and for this reason, they are more of an added cash reward.
- Tax Benefits:
Just like other premium-paying endowment plans, taxes, which you pay for your endowment plan can be claimed against your tax under Section 80C. Also, both the maturity benefit and the death benefit under the endowment plans are granted tax-free under section 10(10D).
How to Choose the Right Endowment Plan?
The two factors that help to select the best endowment plan are the financial objectives and the sufficient level of life cover. Here are a few tips to help you select the best plan:
- Determine Your Financial Goals:
No matter whether it’s saving for your child’s education, a house or your retirement, you should choose your plan with your future requirements in mind. To do this, one needs to determine whether the policy’s term and the sum assured correspond to his or her goals.
- Calculate Premiums:
When choosing a policy, it is necessary to check the endowment plan premiums using a premium calculator accessible on the Internet. Specifically, be certain that premium payments are cost-effective and you are still able to make these payments until the policy term expires.
- Assess Flexibility:
Select a plan that doesn’t restrict when you have to pay your premiums and one that would allow you to include a rider, such as those with critical illness or disability.
Conclusion
Endowment plans provide a beneficial blend of savings and life insurance protection, assisting you in achieving your long-term financial objectives and securing the future of your family. Selecting the appropriate endowment plan requires knowing what endowment plan premiums are and how they affect your policy. Your financial needs, policy duration, and premium affordability may all be carefully taken into account when choosing the best endowment plan to help you save and safeguard your future.
11+ years strategic communications, marketing, and project management experience. I am a trainer at StarWood Training Institute, focusing on online courses for project management professionals.
