Endowment Plan Meaning:
Endowment plan works with dual benefits of insurance as well as saving. Endowment plan provides life insurance coverage and maturity benefit. The maturity benefit is given to the policyholder on survival ,after an agreed time period.
For sound financial planning it is important to save regularly, create wealth with secured returns. All these three are fulfilled by endowment plans.
The life coverage benefit secures the family’s future.
Endowment plans give decent returns to create sizable funds. The endowment plans are meant to serve different purposes of investment for different life stages. Endowment plans keep paying the benefits unless and until premium payments are discontinued.
Types of endowment plans:
1.Unit Linked Endowment: This is a type of endowment plan where the funds are invested in the markets to capitalize the returns. The returns you make in this investment completely depends upon the market performance.
2.Pure Endowment: Pure endowment plans completely work on the bonus structure. The performance of the company is directly linked to the bonus payout in the investment.
The returns that you get on maturity will be quite higher than the expected return.
3.Low Cost endowment: Low cost endowment plans are designed with the aim of repaying the mortgages. The lumpsum amount is given on the maturity or death of the policy holder. The lump sum received is used to make part payments or set off entire mortgage loans.
4.Non Profit Endowment: Non profit endowment plan as the name suggests does not participate in the profits made by the company. Hence there are no bonuses added to investment at maturity. The sum assured is paid out either on death or maturity whichever is earlier.
5.Unitized with profit endowment: Unitized with profit endowment plans work with guaranteed payback along with unitized market linked performance. Guaranteed amount is unaffected by market uncertainties.
Right time to start:
Endowment plans make an individual start analyzing financial goals and give a push to save money.
- An endowment plan can be started once there is steady and stable income.
- The idle age to start would be an early age (around 25 years) when an individual starts working. A small portion of his/her income will go into investment and also make savings a habit. This will secure his present as well as future goals will be fulfilled timely.
- A person in the age of 30-45 years can save for the non-negotiable financial goals of life. The goals include child education, marriage and for regular income post retirement.
Savings is a habit and there is no defined right time. The above is suggested right time to start ,considering product entry age and different milestones of life.
Benefits of starting early:
“Save money while you are earning because money will save you when you are not earning”
Like discussed above, endowment plans make disciplined savings. These plans also help in wealth creation.
Starting early will always help you save more over a time period and make you learn and grow from mistakes made on financial aspects of savings and investment.
Now let us have an overview of starting early investment in endowment plans:
- Endowment plans work with the power of compounding. Adding interest on interest will build more wealth if invested for a longer time period.
- Bonuses declared in endowment policies give a booster to the investment amount accumulated.
- The life insurance coverage will take care of family’s expenditures in case of demise of policyholder.
- Endowment plans started timely will accumulate wealth for different life goals like child education, marriage and retirement planning.
- Endowment plans can be started with a minimum premium. Starting at a young age can help save more and build an adequate amount of money at maturity of policy.
Overall Benefits of investing in an endowment plan:
- Risk: Endowment plans are low risk investments. It can be started by a person even in late 50’s as the principal amount and returns are both secured.
- Savings: Endowment plans help in disciplinary savings. The regular saving habit is the first right move towards financial planning.
- Security: You can secure your future and family’s future with long term savings.
- Tax Benefit: Endowment plans allow you to avail taxation benefit under section 80 (C ) and give a tax free maturity under section 10 10 (D).
- Life Long Income: Endowment whole life plans work as life long income for investors.
- Survival Benefits: Endowment plans come with double benefits i.e. death benefit and survival benefits. Where death benefit is paid on demise of policyholder to the nominee , survival benefit is paid on maturity of the policy to the policyholder.
- Choice of investment: Endowment plans are market linked and non-market linked. You can take a taste of both and add both the plans to your basket of investment.
- Flexibility of premium payments: If you are salaried you can opt for regular premium payments. If you do not have a fixed income then you can go for one time investment (single premium).
- Worry-Free Life: Endowment plans help you live a worry-free life and assure peace of mind with life cover attached to the policy. Incase of demise of the policyholder the nominee gets the death benefit.
- Bonuses: In traditional endowment plans revisionary and terminal bonuses are added at maturity. Bonuses enhance the investment and are added to the accumulated fund at maturity.
- Rider Benefits: Endowment plans can be enhanced by attaching riders at a nominal cost. The riders are accidental rider, critical illness rider, waiver of premium rider and permanent disability rider.
- Loan Facility: Loan facility can be availed in an endowment plan once it has acquired the surrender value.
Conclusion:
Endowment plans work differently for different sets of investors. Being one of the oldest investment types in the insurance market. Endowment plans still have market sustainability because of the set mindshare of people.
Endowment plans are saving oriented plans along with an attached coverage to provide security to the loved ones of investors.
Endowment plans are designed for someone who is risk averse and wants a stable return at maturity. The major component of the funds invested goes into debt instruments making it a low risk investment.
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