How Does an Endowment Plan Help Your Savings?
Savings plans, as the name suggests, are insurance plans that allow individuals to save funds for the future through organised investments. The purpose of a savings plan is to help one meet their long-term and short-term financial goals. But apart from aiding in creating a savings corpus, a savings plan also offers life insurance coverage. To ensure that such a plan serves your specific investment goals, there are different savings plans such as whole life insurance plans, money-back plans and endowment plans to choose from.
An endowment plan is one of the most popular savings plans for some crucial reasons. And when it comes to looking for a suitable plan, there is no dearth of reputed insurance companies that can offer you the best endowment policy.
What is an Endowment Plan?
An endowment policy is a life insurance traditional plan that has a savings component as well as a life cover. In the case of the policyholder’s death, the beneficiaries are entitled to receive a guaranteed sum assured as a death benefit. However, if the policyholder survives the term, then they get the guaranteed sum assured, along with some returns which may be earned from the investments.
These returns or bonuses earned from the savings component during the tenure of the plan and its appreciation leads to the accumulation of a corpus that helps the policyholder plan their future expenditure.
Unlike a term life cover, which is also a traditional life insurance plan and offers only life cover, you can utilise an endowment plan to save for major expenses in the future while offering financial protection to your family in case of any eventualities.
Features of Endowment Plan that Aid Your Savings Strategy
When looking for a savings plan, endowment policies are preferred by most people because these plans have certain features that make them more attractive than any other life insurance traditional plan.
- Carries less risk: Being a savings plan, endowment plans are low-risk investment options which makes them a preferred choice among risk-averse investors over other options like mutual funds or even market-linked life insurance plans like ULIPs.
- Death and survival benefit: Unlike most other life insurance plans which offer either a death benefit or a survival benefit, an endowment plan offers both, as the situation demands. Also, combined with the savings from the plan, the sum assured could be much higher than what other plans can offer.
- Choice of premium payment: Apart from choosing from limited, single or regular premium payment options, the policyholder can also choose to pay the premium on a monthly, quarterly, half-yearly or annual basis.
- Flexible coverage: To enhance the cover of an endowment plan, you can add critical illness or accidental death riders. Some insurance providers also offer riders to waive off premium payments in the case of critical illness or permanent disability.
- Comes with tax benefits: The premium payments under the plan are exempted from taxes under Section 80C, and the maturity benefits or death benefits are tax-exempt under Section 10(10D) of the Income Tax Act.
If you have a long-term financial goal to be fulfilled, such as your child’s higher education or the older child’s wedding, you would have to consistently save a part of your income to meet the goal. However, such a tactic will serve a singular purpose – that of only saving money. Moreover, investments are a better way to brace the falling value of money against the rising inflation rates over the long term.
As mentioned earlier, the savings part of such a policy is crucial as it is invested in different securities, which helps generate lucrative returns.
When it comes to choosing a life insurance product, an endowment policy can be helpful if you are keen on growing your savings. Though you may have multiple options to choose from saving schemes in India, there can hardly be anything that offers you the dual benefit of life protection as well as an investment under the same plan. Additionally, endowment plans are also known for offering guaranteed returns as opposed to other life insurance products where the returns may not be guaranteed.