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When you think of insurance products, do you naturally assume policies that offer no investment value and do not have any liquidity for the policyholder?
We understand most life insurance policies only hold any value to the beneficiaries after the policy holder’s demise. However, there is a traditional endowment plan that might interest you for your personal financial goals.
An endowment plan doesn’t get much credit since it’s pretty traditional and has been around for longer than most investment methods. However, you would be surprised to know that one could get the perks of insurance along with the profits of a savings plan in this category.
A savings plan is usually one that allows you to pay regular premiums and get returns at a fixed compounded rate, in a manner that ultimately, even your purchase price, i.e., your premium, gets paid back to you or your nominees.
In a nutshell, it’s an investment to grow your wealth. However, what if we told you that you could invest and be insured simultaneously? Such policies do exist!
As per this insurance, you or your beneficiaries could get a whole lump sum amount, which is fixed per your agreement with the insurance firm. So, in simple terms, it is an insurance product which doubles up as an assured income plan. This is called an endowment policy. When you get endowment insurance, you get the benefits of both: Insurance as well as investment.
Now, there are many types of endowment policy. However, before we look into the types, let us first understand what an endowment policy can do for us.
What Is Endowment Insurance?
An endowment insurance plan is a life insurance scheme, wherein you pay a fixed amount in your premium for a pre-discussed time interval and get returns after the course of your policy's “term.” Do note that your premium span can be lesser than your policy’s operating period, which is also its term.
Since these policies often pay you a significant amount of money, there is a stability factor. Depending upon the policy that you choose and your premium size, the payments may even be enough to pay off loans, supplement your income, and more. So, earning themselves a justified name – income assured plan.
Your endowment policy can also go on for longer than your pre-applied term. You could easily get your term increased or simply go for a lifelong policy.
A significant advantage that endowment policies have over your regular life insurance policy is that if you live post your “term”, you get all the corpus that has been generated over the years. In life insurance policies, your beneficiaries get the money upon your demise.
In endowment insurance, even the policyholder can use their invested money upon the policy’s maturity.
This leaves you with a large amount of money that's cashable and re-investable. You can then apply these funds to accomplish your long-term goals. In your 50s or 60s, when other income sources have dried up, your endowment insurance would come to your rescue and provide you with enough finances to live your retirement how you have always dreamt of! For this very reason, it’s also referred to as an income assured plan.
Moreover, you’d be happy to know that you get tax* benefits of up to INR 1,50,000 every annum for as long as you pay your premium. Plus, there is a complete tax relaxation upon your final withdrawal, too, on your policy’s maturity. Yes, you do not pay any taxes on the returns!
So, it’s clear that there are several benefits attached to a savings plan like that of an endowment insurance plan. However, it also depends on the type of policy.
Let’s look at the various types.
Full-Endowments/ With-Profit Endowments
There is a fixed sum assured that you’ll be paid upon maturity, or your beneficiaries will be paid upon your demise. But that’s not all! There are several bonuses which your insurance firm can extend upon maturity, based on their clauses.
In most cases, your sum assured will turn out higher than promised.
The premium size is small, and hence, the returns will be low as well. However, it can help you save for short-term goals.
Unitized Full Endowment Plan
These endowment policies are savings plans with an equity punch. You have a chance to multiply the invested premium, but you would also have the stability of a fixed sum assured. Now, depending upon the allocation for equities, you might have a smaller guaranteed1 sum waiting at your maturity.
However, despite the fluctuations in the share market, you will be paid the fixed sum. Over the years, it’s probable that equities, too, will give you great returns. This makes your unitised full endowment plan great insurance as well as a savings plan.
Unlike full endowment schemes, you do not get any bonuses upon the policy’s completion. The fixed sum is decided at the very behest of your policy’s commencement.
3 Goals That You Can Fulfil With an Endowment Scheme
1. Pay off your debts
Your endowment funds can help you clear out your loans and borrowings. If you plan on purchasing your dream house, you would either need a huge loan or a considerable endowment fund.
With endowment insurance, you might even be able to avoid these loans, which come at high penalizing interest rates and ultimately take more than they give! Insurance providers like Tata AIA life insurance even offer you lucrative bonuses.
2. Plan your familial duties
An endowment fund will take care of your family in an eventuality. The sum assured will be paid to your pre-disclosed beneficiaries even if the demise has been during the payment schedule or before the plan matures. However, certain insurance firms might have a mandatory payment schedule of 3 to 5 years, throughout which the premium payment has to be made. You would have to check with your provider.
3. Post-retirement finances
Upon the completion of your policy period, the endowment scheme gets the policyholder a lump sum amount. You could then invest it elsewhere or simply use it to live an independent, financially sound retirement phase.
We hope the article has been of help to our readers, who were initially in doubt about whether an endowment fund is right for them. Let us know in the comments if you would like our help in choosing the right plan. Good luck!
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*Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you
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The products are underwritten by Tata AIA Life Insurance Company Ltd.
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This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.