Buying an endowment plan offers several benefits to the buyer, irrespective of any age at which the policy was purchased. The younger your age, the more benefits you are likely to reap from it. An ideal time to buy an endowment plan would be in your late twenties. This is because it is easy to buy one since you have fewer financial commitments, and you can lock the policy at a lower premium. Even though you have crossed your 20s, it is never too late to buy an endowment plan. Be it your 30s, your 40s, or even your 50s, buying the right endowment plan will help to protect your loved ones along with creating wealth for the long haul. An endowment plan ensures that your loved ones are secure in your absence, along with you having funds to achieve your goals. But, before buying an endowment plan, it is important to understand its meaning and the benefits it offers
Meaning of an Endowment Plan
An endowment plan is a life insurance policy that also includes a savings component. When you buy a policy, you pay premiums like any other insurance. However, when a life insurance plan matures, usually, you do not receive any benefits. With an endowment plan, you receive the maturity amount, which comprises the savings component, along with the interest earned on it. However, if during the tenure of the policy, the policyholder loses their life, the nominee will receive the death benefit. This ensures that your loved ones are protected, along with the creation of wealth in a single plan.
One of the striking features of an endowment plan is that the interest in the savings is fixed. The plan is not linked with the market and is safe, as it provides guaranteed returns. To ensure that you have the funds you need when your plan matures and your loved ones have enough cover, you can use a life insurance calculator before purchasing the plan.
Benefits of an Endowment Plan
Once you understand the meaning of an endowment plan, it is important to know how buying one can benefit you. Here are five striking benefits of an endowment plan-
1. Offers Guaranteed Returns and Bonus
A percentage of funds pledged for endowment plans is frequently announced and paid out as an annual bonus. This ensures that, along with the returns that are guaranteed to the policyholder, they also receive a bonus over their savings. Thus, when the plan matures, the policyholder receives the sum assured, along with any accumulated bonus thereon. Also, having guaranteed returns from a policy relieves a policyholder from tracking funds and fearing market fluctuations. This maturity amount can then achieve the financial goals of the policyholder. One of the things to consider before buying an endowment plan is its low-risk appetite.
2. Flexibility
Endowment plans are quite flexible in nature, where you set the tenure of your recurring premiums at the time of their purchase. Also, the premiums you pay offer significant benefits when the plan matures. If you cannot pay premiums for a few months, you may still be eligible for a free paid-up insurance policy. However, the guaranteed returns would be lower than expected. This feature depends upon your insurance provider, and usually, is only offered when certain conditions are met.
3. Dual Advantage
An endowment plan is a long-term instrument that offers savings and life insurance in a single product. When you buy one, you achieve two financial goals with ease. The life insurance aspect ensures that in your absence, your loved ones have a financial backup to rely on. With a life insurance calculator, you can ensure that you have a sufficient sum assured. On the other hand, the savings component ensures that when your plan matures, you will receive a guaranteed maturity amount. This is inclusive of the amount you saved along with the interest that you have earned on it.
4. Creates a Savings Fund
People save and invest to achieve certain financial goals, be it buying their dream house, travelling, or simply building a retirement corpus. One of the things to consider while buying an endowment plan is that you will save without even realising it. The savings are included in the premium that you pay. When your plan matures, you will receive the benefit as a maturity amount. You can use these funds for the goals you want to achieve.
5. Tax Benefits
Since endowment plans are a type of life insurance, they have several tax benefits to offer. The premiums that you pay for your plan are deductible from your income under Section 80C of the Income Tax Act, while, the maturity amount and death benefit, both, are subjected to tax exemptions according to Section 10(10D) of the Income Tax Act.