What is endowment Insurance?
Are you among those that spend extravagantly, even if you know you are not going to make use of the items you are buying, but you will just see yourself buying them?
However, do you find yourself unable to save for your future needs? If that is your case, endowment insurance is what you need now to put yourself in order. Endowment insurance helps you in saving regularly over a specific period of time so that you are able to get a lump sum amount on policy maturity if the policyholder survives the policy term.
A close glance at the endowment contract reveals that it is actually a combination of term assurance and pure endowment; term assurance because benefits are payable should death occur within the term and pure endowment because the benefits are payable if the life assured survives the term.
Note: a pure endowment is an insurance contract whereby the sum assured is paid to the policyholder only if he survives the terms till the maturity date. If he does not, then nothing is paid by the insurer.
The focus of attention in the marketing of endowment insurance is on the saving element for the policyholders. looking at this future, the premium or endowment is usually higher than that, for instance, whole life insurance for a given term and life assured.
Definitions of endowment insurance
Endowment insurance is a contract properly designed to pay a lump sum after a certain period (on its maturity date) to the policyholder, should he survives the contractual terms or paid the named beneficiaries ( Usually family representative), should die within the term of the contract. The term can be 5 years, 10 years, or 40 years depending.
Endowment Insurance: This is a form of life insurance that pays the face value of the sum insured either at the end of the contract period or upon the insured’s death.
Features of endowment insurance policy
Features of endowment insurance policy
- 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 the 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 i.e. Term Plans.
- Premium payment frequency: The policyholder can make payment of the premium based on the policy chosen by him/her. Payment can be done on a monthly, quarterly, half-yearly, and on yearly basis.
- Flexibility in Cover: Riders with 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 waivers 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 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 ULIPs because the amount here is not directly invested in equity funds or the stock market.
Who should consider purchasing an endowment insurance policy
According to experts, people with a regular stream of income and need a lump sum amount after a period of time may consider buying an endowment plan. This is because endowment will enable them to build their savings power
“Endowment plans provide a disciplined route for savings, which could come in handy in case of a financial emergency. Salaried people, small businessmen, and professionals such as doctors and lawyers should look at this plan to meet their long-term financial security needs. Also, people who are risk-averse and do not mind settling for less.
Uses of endowment Insurance
endowment insurance is often used for house purchases, hence it is sometimes called. House purchase insurance, when used for this purpose. In this case, the maturity date is made to suit the last date of redemption of the house mortgage.
Furthermore, no payment for the mortgage is made by the mortgagor in between, redemption being made in a lump sum at the end. However, should the life assured die within the mortgage period, the sum assured is paid directly to the mortgages?
The basic things to consider when purchasing endowment insurance
Basically, in choosing any form of insurance, the individual or organization involves considers so many factors such as his level of income, his present life stage, the amount of premium (income) he’s going to realize at the end of the contract, his personal desire and most importantly risk associated with the contract.
In the case of endowment plans, however, you also need to check the premium rates of various endowment plans as they are expensive compared to term plans. Therefore, a mistake here will cost you more in the long term.
After comparing the premium rates, the next important thing to check is the insurance company’s track record with respect to bonus payments. “Most endowment plans give lesser returns than ULIPs, but the endowment plans are considered safer. However, returns being an important factor for deciding on saving options, customers know about the saving rate.
Another very important thing to consider is the claim settlement ratio, customer service track record, and financial standing of the insurance company. Because this alone will guide you as to whether it is advisable to purchase a particular policy or not