When we think of achieving our personal goals, we also have to think about funding them. Therefore, we need to consider many factors in planning the appropriate financial sources. Besides the savings and investment aspect, we also have the overarching need for adequate life insurance. This is where the novel product of an assured savings insurance plan becomes useful. An endowment plan is a type of savings plan in which the amount accumulated under the plan is paid on maturity.

What is an Endowment Plan?

An endowment plan is unique among insurance policies because it pays a predetermined lump sum at the end of the policy period while offering life coverage throughout the term. As a result, endowment plans are convenient as a savings policy for various life goals and help you fuel your family's dreams, such as children, higher education, marriage, etc.

Why Do I Need an Endowment Plan?

 

The answer to this question is practically all financial commitments that would emerge at predefined points in the future can be met with an endowment plan. If you know the quantum of funds required and the time horizon by which they would be needed, an appropriate endowment insurance policy can help you systematically prepare for the outflow. The guaranteed¹ lump sum at the policy's maturity combined with life cover during the premium payment period and the rest of the policy term make endowment plans suitable for those who have a low-risk preference.

For example, consider Ajay, 40 years old, married, and has a 10-year-old daughter. He lives with his parents, grandparents and a visually challenged sister. He has the following milestones in mind: save the funds needed to build the joint family property, send his daughter abroad for higher education, plan for his retirement living and provide a source of income for his sister. He has a home loan for the house he is living in. His requirements are at fixed times in the future, and he can estimate the amount based on his current and projected future income and other returns, as well as current and future expenses after adjustment for inflation. Ajay’s objectives can be easily met with the benefits of endowment plans.

What Are the Advantages of an Endowment Plan?

An endowment plan is actually an assured savings insurance plan and therefore combines the opportunity for regular savings with life cover so that there is a fixed payout on maturity. Other benefits of an endowment plan are given below:

• The guaranteed¹ lump sum benefit can be calibrated for the projected future sum required after accounting for inflation. The premium would then be lower if you start planning early.
• It is an affordable strategy to build a corpus towards all planned financial commitments in the future.
• The plan term can be matched to the time horizon by which the commitment would materialize. Therefore, it is an efficient approach, and you need not leave your funds idle.
• The benefit of life cover during the plan provides protection against sudden and unexpected eventualities without dislocation to the family. They can receive the sum assured under the plan and go ahead with their dreams.
• The premium payment term and frequency are flexible and can be customized according to your income flow and preference.
• By choosing an endowment plan at a younger age, you can build a significant corpus for essential expenses like a marriage of your child, providing for a dependent, etc.
• The premium paid is eligible for tax* deduction under Section 80C of the Income Tax Act.
• You can avail a loan on the policy up to a specified percentage of the surrender value.
  
  

How Else Are Endowment Plans Useful?

Endowment plans are also useful for creating a fund for meeting a specific future expenditure, either one-off or ongoing. This approach can be seen in grandparents creating an endowment for their grandchildren or a philanthropist contributing to an important social cause such as help with education, medical treatment etc.

How Do Endowment Plans Work?

In an endowment plan, such as the Tata AIA savings plans with life cover, you decide the premium payment term and the policy period depending on the timeline of your commitments. As the sum assured is a defined multiple of the annualized premium, you can choose the required premium according to your needs. At the end of the premium payment period, you will receive the maturity sum assured computed according to factors such as premium payment term and your age at entry.

Thus, an endowment plan is a flexible savings plan. The detailed information about the plan can be obtained from the policy brochure. In Ajay’s case, he could choose endowment plans that would mature at say 5, 10 and 15 years for the financial outflows on the house, his daughter’s education and for his sister (considering he would have retired by 55 years) respectively. He can choose the premium according to the desired sum assured.

In case of an unfortunate eventuality during the tenure of the plan, then the highest of the following would be paid:

• Basic sum assured
• Annualized premiums at a specific multiplier value
• Maturity sum assured
  
  

You can increase the coverage under the policy by opting for additional riders^# such as accidental death or dismemberment and waiver of premium in case of death or disability during the premium payment term.

Conclusion

When you wish the best things for your family, you should always plan to achieve them in a systematic method. An endowment plan is a good approach to save regularly so that you don’t feel constrained financially when you have to meet a predetermined commitment.  In addition, the life cover under the endowment plans adds certainty to your family’s aspirations even if you are no more around to provide for them. Calculating the projected requirements and matching with your current income level, you can purchase an endowment plan at surprisingly low costs.

Out of the savings plans in India, Tata AIA’s policies combine affordability and convenience. The policy features can be checked online and you can complete the purchase from the comfort of your home. You can choose to customize the plan according to your specific requirements.

L&C/Advt/2022/Jun/1108

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