An endowment policy is a life insurance contract designed to pay a lump sum after a specific term (on its ‘maturity’) or on death.
What is an Endowment Plan?
Endowment plans are life insurance policies with dual purpose. An endowment policy can be used by you to build a risk-free savings corpus, while providing financial protection for family in case of an unfortunate event. This simplicity of an endowment plan has over the years made it an attractive savings plan for all.
A good endowment policy provides us with the confidence and the tax-free returns to meet emergencies in the future while enabling us to meet our non-negotiable life goals like meeting children’s education expenses, their marriage or living a dignified retired life on our own. In case of death during policy term, your loved ones get the money you chose for them in a hassle-free manner. Thus, an endowment plan acts like a shield of financial protection for you and your family.
Why You Need To Buy an Endowment plans?
Endowment life insurance policies have certain obvious benefits.
For starters, the policy holder has a pool of savings when the endowment insurance policy matures. He can either reinvest the amount or use it to enjoy life post-retirement. Thus, endowment policy is almost risk-free and offers a steady amount on a fixed date as long as the premium is paid.
You can also use this money for your monthly expenses, your child’s education or wedding, or even for a much-deserved vacation.
Features of Endowment plan
- Death along with Survival benefits: In case of demise of the insured, the beneficiary/nominee of the policy gets the sum assured along with bonuses. Also, the insured is allowed to get the sum assured if he/she outlives the policy.
- Higher returns: An endowment policy is helpful in building a corpus for future and providing financial protection to your family. The payout for survival benefit and death benefit of an endowment plan is higher than that of a pure life insurance policy.
- Premium payment frequency: The policyholder can make payment of the premium based on the policy chosen by him/her. Payment can be done on monthly, quarterly, half-yearly, and on yearly basis.
- Flexibility in Cover: Riders like critical illness, total permanent disability, and accidental death can be added to the base plan and enhance the life cover. In addition to this, there are a few plans that offer waiver in the premium payment on total permanent disability or critical illness.
- Tax Benefits: The policyholder is entitled to get tax exemption on both premium payments, maturity and final payouts under the Section 80C and Section 10(10D) of the Income Tax Act, 1961.
- Low Risk: Traditional Endowment policies are considered safer as compared to the other investment option such as the Mutual Fund or the ULIP’s because the amount here is not directly invested in equity funds or the stock market.
Riders available under Endowment Plan
The following benefits can be chosen with an endowment plan, these are optional.
- Critical Illnes: If the policyholder is diagnosed with a critical illness like cancer, heart attack, paralysis, kidney failure, etc. The policyholder will get a lump sum amount.
- Accidental Death: When the policyholder opts for this additional rider, the insurer will pay accidental death benefit in addition to the Death Benefit to be given to the beneficiary.
- Disability: The disability rider proves to be highly beneficial to the policyholder if he/she suffers from a partial or permanent disability.
- Waiver of premium: Through this rider the insured is not liable to pay the premiums of the endowment policy in case the policyholder suffers from a critical illness or permanently disabled.
- Hospital Cash Benefit: Hospital Cash Benefit provides you for daily allowance as well as post- hospitalization benefits, in case of hospitalization of the policyholder.
Disclaimer: The terms and conditions of this rider will differ from insurer to insurer.