Nothing but what matters is that the ultimate requirement of life is money.
If you have money to address your needs, you are the winner. But unfortunately, asking for financial help is taken as a disgrace, and not everyone is lucky enough to get that financial assistance.
Life is unpredictable and is often known to set us in the mode where we never wanted to be. It can give you challenges that you alone can handle but only if you have plenty of resources. Yes, we are talking about money here. Emergency or not, money has the power to fulfill your and your family’s desires. So when you start a family, the next thing you begin with is financial planning. Well, vast funds of money are not built in a day. Instead, you have to choose ways that yield you high returns. One possible way to save money is by buying an endowment plan.
Let us explore facts about an endowment plan.
What is an endowment plan?
An endowment plan is also known as a savings plan. The life insurance policy comes with a dual benefit of insurance cover and savings. The insurance policy helps you prepare financially by savings over a period. The policy benefits the life insured at the end of the policy term with a lump sum maturity amount. It also offers death benefits to the nominee if the life insured passes away during the policy term.
Let us now read the benefits of the endowment plan.
Benefits of Endowment Policy.
Buying an endowment plan helps you in:
- Savings for the long term goals:
Under an endowment plan, you can save for the long-term goals that could be saving to build your house, life post-retirement, or your child’s future education. Over the years, if you continue to pay the premium, the policy will yield high returns. The amount can be used to attain your future dreams.
- Accumulate funds for the short-term goals.
With a savings plan, you can also accumulate funds for short-term goals like planning a vacation abroad. Like, spending lakhs of rupees on vacation is not possible for middle-income families. So it is wise they buy a savings plan and decide the type of the plan based on their goals.
- Get tax benefits
You can buy a savings plan to get the tax benefit. All the premium paid in a year under the savings plan is eligible for tax deduction under Section 80C of the Income Tax Act,1961. The maturity benefit is also tax-exempt under Section 10(10D).
- Bonus: The savings plan provides you with a bonus as the percentage of the sum assured. If the policyholder survives, the additional bonus that is earned during the policy is paid in addition to the sum assured. The bonus is a part of the profit that the insurance company shares with the policyholder (you). This will boost the final pay-out, and you can achieve your financial objectives faster.
- Build enormous funds for the family.
The primary purpose of a savings plan is to be financially prepared for future goals or unexpected emergencies. Whatever may be the purpose, huge funds created under the savings plan will always help a family battle the unexpected. If the life insured passes away during the policy period, the insurance company will pay beneficiaries the sum assured plus the bonuses(as declared by the insurer).
- Enhance cover with riders: The insurance companies provide life insured an option to choose riders that comes at a nominal additional cost. In addition, the covers offer the opportunity to enhance the scope of coverage.
After reading how a savings plan can be beneficial, you must read the below before buying the endowment plan.
Avoid these mistakes when buying an Endowment Plan.
These are the mistakes that you must avoid when buying an endowment plan.
1. Don’t delay in buying the plan.
Start saving as soon as possible with the endowment plan. The benefit of buying a savings plan early is that it gives you life cover at an early age. Also, you get good returns over a long period of time. For salaried individuals, it is more beneficial as the premium is also less when you are young.
2. Do not invest randomly.
Do not invest randomly without understanding the type of the endowment plan. There are 4 types of endowment plans that include a Unit-Linked Endowment Plan, a Full Endowment Plan, a Low-Cost Endowment Plan and a Non-Profit Endowment Plan. You must first explore the types and the coverage offered under each savings plan. If a plan provides results as per your goals, you must finally select the policy.
3. Do not ignore riders.
Riders are additional covers that come at a nominal premium. You must choose to enhance the policy’s scope of coverage by adding riders that the insurance company offers. For example, if you buy Waiver of the Premium Rider cover, it will offer a chance to save more money. According to the cover, if the life insured suffers from permanent disability, death, or 4 specified major illnesses, the family is unburdened to pay all future premiums.
4. Check whether the savings plan allows for flexible premium payment.
Paying a premium is an added financial burden to individuals who want to save money. However, paying a premium can also be managed for them. First, you must check whether the savings plan comes with the flexibility to pay premium monthly, half-yearly, quarterly, or annual. Then, based on the inflow of income, you must select the premium payment. For example, individuals with irregular income should choose yearly payments, while salaried employees can pick monthly premium payments.
5. Compare endowment plans
We do not live in an era where buying things based on just the face value helps. It is essential that you compare different endowment plans and then buy. Essential is to consider certain factors like income level, risk appetite, long-term goals, and requirements. Once different aspects satisfy you, then buy the endowment plan.
An endowment insurance plan is a great way to financially safeguard yourself and your loved ones. The insurance policy provides you benefits like good returns when you save regularly towards a specific goal. You can use the elements outlined above to select a plan that meets your insurance needs. For more information on the endowment plan, read here.