As a bread-earner of the family, you have the responsibility of taking care of your family’s financial well-being both in your presence and absence. This means building a saving corpus your family can depend on, as well as buying insurance that can come to your family’s rescue if God forbid something happens to you.
Instead of buying an insurance policy, and investing in a saving scheme separately, a better idea would be to invest in an instrument that offers you the benefit of both – An Endowment policy.
We’ll be telling you all about an endowment policy in this guide.
Source: Max Life Insurance
What is an Endowment Policy?
An endowment policy is a kind of insurance policy that offers you the dual benefits of an insurance policy, as well as a savings scheme. You have to pay a premium that is used to invest in an insurance policy and a savings scheme in a definite percentage. As a savings scheme, you receive a guaranteed sum at maturity upon making regular payments. In the event of the death of the policyholder, the assured amount is paid to the nominee in addition with the earned bonus if applicable.
Tips to be Considered
- Picking the Right Type of Endowment Policy
There are different types of endowment policies in India; you need to buy the type that fits your financial goals and convenience the most. Here are the different types of endowment policies you must know about:
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- Unit Linked Endowment Plan:
The premium payable in unit-linked plans is divided into multiple units which are held under particular investment funds. These investment funds are selected by the policyholder.
- With Profit Endowment Policy:
In a with-profit endowment plan, a definite amount is paid as a maturity benefit along with bonuses that a policyholder accumulates during the policy tenure.
- Low-Cost Endowment Policy:
This endowment policy works like a mortgage, allowing the policyholder to gather funds which are to be paid after a specified time period.
- Non-Profit Endowment Policy:
This type of endowment policy does not participate in the profits of the company. However, some insurance companies do provide guaranteed additions to offer multiple benefits to the customers.
- Unit Linked Endowment Plan:
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Source: Max Life Insurance
- Don’t Forget to Buy Riders:
As an endowment policy offers the dual benefits of an insurance policy as well saving scheme, customers have the option to buy riders along with the policy. Riders are add-ons that customers can choose to increase their policy benefits. There are no standard riders offered by insurance companies; different insurance companies offer different riders. The most basic ones are education and critical illness riders.
Therefore, ensure that you pick the ones that help you meet your alternate financial goals. You can also avail deduction under Section 80C to save on tax with an endowment policy.
- Claim Settlement Ratio:
As an insurance policyholder, you promise to pay premium against a guaranteed sum owed to your family in the unfortunate event of your death. Likewise, you would also expect the insurance company to keep their promise. This is where a claim settlement ratio comes in.
A claim settlement ratio is an indicator of the claim settlement capability of the insurer. An insurance company with a high claim settlement ratio is more likely to pay your family the death benefit, than a company with a lower claim settlement ratio.
- Consider Review Options:
An endowment policy provides numerous options to provide greater flexibility to its customers. It’s highly recommended that you choose an endowment plan accordingly. For instance, in case you are a fixed-income individual, you can opt for a regular pay endowment plan. In case, a regular pay endowment plan doesn’t sit well with you, you may choose the ideal endowment policy according to your inflow of income.
- Don’t Ignore the Financials of the Company:
An insurance company should be financially capable of settling your insurance claim. Therefore, it’s essential that you check the financial strength of the company before buying an endowment plan from one.
- Invest at the Earliest!
You don’t have to wait till your 40s to buy an endowment policy. An investment made at the earliest goes a long way when it comes to giving you higher returns and sizeable savings you can depend on.
Final Thoughts:
If your goal is to secure the financial well-being of your family both in your presence and absence, buying an endowment plan is highly recommended. However, buying an endowment policy is not a simple purchase. It involves a lot of factoring in. At the same time, it’s essential that you know about the do’s and don’ts of buying an endowment plan to become a smart customer.
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