Savings is an essential part of life for accomplishing your financial goals. It can organise your income in the best possible manner and secure your finances better. Investments in financial markets can create and grow your wealth. However, it is subject to market risks. And, not every person can accommodate risk.
An endowment plan or, as it is commonly known today, a life insurance savings plan will certainly be an ideal option for such people. A savings insurance plan or endowment life insurance plan has additional benefits as opposed to the traditional savings plans, such as fixed deposits, savings schemes, etc. offered by financial institutions. Here is how an endowment plan can help you build your savings effectively.
What is an Endowment Plan?
An endowment plan is a life insurance plan that provides a life cover that will ensure a sum assured to your nominee in case of your unexpected death and a maturity benefit. The maturity benefit is guaranteed1 during policy inception, which helps you plan for your financial goals with reasonable accuracy. There are different types of endowment plans with varied benefits to suit individual financial needs. Let us start by discussing the basic features of endowment plans.
Basic Features of an Endowment Plan
- Life cover – The endowment plan primarily provides life cover. It will ensure to protect your family's financial needs. There are also the add-on rider# benefits.The riders# consider the specific conditions and pay the insured amount for handling the situation.
- Maturity benefit – Endowment plans provide a maturity benefit based on the terms and conditions of the policy. For example, Tata AIA life insurance provides different kinds of endowment plans with either a lump sum benefit or a regular income monthly or annually post maturity.
- Different payout options – You can avail of the maturity benefit in three different ways: a lump sum amount, a regular income, or a combination of regular income and lump sum. If you choose the regular income option, you can also decide on the income period for a specific time or the whole of your life until death.
- Flexible features – The endowment plans extend the benefits by offering a variety of flexible features. For instance, you can pay the premium amount monthly, quarterly, half-yearly or yearly based on your preference.
Advantages of Savings Insurance Plans
When you save in a savings insurance plan, you get the following benefits:
- You can save in a systematic manner and build your corpus using the various flexible features of the plans. The financial discipline that this habit brings can help you in the long run.
- You can save for any financial objective with an appropriate income period.
- They are useful for both medium-term and long-term goals.
- When you save in a guaranteed1 return plans early in life and save in the long term, you will benefit by paying a lesser premium.
How can you build your savings with an endowment plan?
We have seen the basic features of an endowment plan. The highlight here is the maturity benefit that you would receive at the end of the policy term. You can build your savings if you have a well–defined savings plan. Here are a few steps that can help you in this regard:
- Understand your financial status based on your income flows.
- Make a budget based on your income from different sources and calculate the expenses.
- Consider the short-term and long-term financial goals.
- Set aside a specific amount of money for saving in the savings insurance plan based on this financial plan.
- Using the online premium calculator, determine the premium amount required for accomplishing your financial goals. For example, you might have to plan for your child's higher education fifteen years from now. You can estimate the amount required considering the inflation rate and derive the premium amount.
- If your objective is to build your savings for retirement, you can use the assured regular income plan. Consider the current expenses calculated above and a few other medical expenses that might occur at your older age, and derive the regular income required. Based on this required income and the age to retirement, you can decide on the policy term and the premium amount.
It is important to note that the savings plan with life cover will maximise protection and benefits when you stay invested in the long term.
Who should consider investing in an endowment plan?
Endowment plans can be beneficial to different categories of people.
- If you are the sole earning member of your family, then a savings insurance plan is certainly necessary. It provides a life cover and helps you accomplish long-term family commitments.
- If you have a long-term dream, for example, pursuing higher education in a foreign university after five years, you can devise a strategy based on the savings plan.
- If you are looking for tax* benefits, you can opt for the savings plan to get the deductions and exemptions under the Income Tax Act, 1969.
Savings insurance plans provide dual benefits: insurance and savings. With a well-defined financial plan, you can calculate the amount required for your financial goals or retirement. Then, based on the fund required, you can build on your savings with the savings insurance plan. In addition, you can avail of flexible features and opt for the lump sum payout or the regular monthly income based on your financial goals.
Moreover, you could have extensive family financial commitments, you look forward to accomplishing long-held dreams but can only invest in safe options or you are looking for tax* benefits. In all these cases, the savings insurance plan is certainly a handy solution. It will be a cost-effective option and help you develop the habit of savings and provide maximum protection if you stay invested!