Saving and investing every month from your paycheck allows you to finance your dreams and goals. Be it buying a dream house, going on a holiday, buying the car you always wanted, or simply saving up for your retirement, you achieve these objectives by savings. Especially saving instruments that require recurring payment from you allow you to save systematically with discipline. One such saving plan you can opt for is an endowment plan.
An endowment policy is life insurance with a savings instrument. When you buy one, you get a life cover along with the opportunity to earn returns on savings in a single plan. Having life insurance ensures that in your absence, your loved ones have a financial backup to rely on. While the savings aspect ensures that when your endowment plan matures, you receive a maturity amount to fulfil your objectives. Before investing in an endowment policy, it is important to understand what separates it from other saving tools. Here are some features of an endowment plan which make it a preferred savings tool:
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Dual benefits
An endowment policy offers dual benefits in a single plan. It is a type of life insurance that also provides benefits in the form of savings. This allows you, as a policyholder, to keep your loved ones secure with the plan while getting funds to fulfil your goals. The longer you stay invested in the plan, you are likely to get returns from compounding. When you are planning your finances, it is helpful to have an instrument that takes care of your two major needs in a single plan. The dual benefits are a prominent reason individuals choose to buy an endowment plan.
Guaranteed returns
There are several savings and investment tools to choose from nowadays. With the plans that are linked to the market, you are required to track their performances constantly. One of the things to consider before buying an endowment plan is the guaranteed returns that they offer. When you buy the plan, you know the returns that you will earn on it. You do not have to worry about market volatility or tracking your savings constantly. The rate of return is fixed when you buy an endowment plan, and you receive the money after your plan matures.
Maturity benefits and death benefits
Since an endowment plan is life insurance, it pays out a death benefit in case of the demise of the policyholder within the duration of the plan. The death benefit is given to the nominee as mentioned in the plan. Use a life insurance premium calculator to ensure that the sum assured suffices to meet the needs of your dependents. However, on surviving the tenure of the policy, the policyholder gets maturity benefits. The maturity amount is a lump sum payment that the insurance companies provide, including the policyholder’s savings and the returns they earned on it.
Tax benefits
One of the things to consider before buying an endowment plan or any other financial instrument is its tax implication. When you buy an endowment plan, the premiums that you pay for it are exempt from taxes under Section 80C of the Income Tax Act. Also, the maturity amount and the death benefit both are exempt from taxes according to Section 10 (10D) of the Income Tax Act.
Additional rider benefits
At its core, an endowment plan is a life insurance plan, and hence, includes all the features and benefits that a typical life insurance offer. Along with your base plan, you can choose rider options. Riders are add-on benefits for which you have to pay add-on premiums. The common riders that you can choose from are accidental death benefits, total and partial disability benefits, critical illness benefits, premium waiver benefits, accidental permanent disability benefits, and hospital cash benefits. You can choose the rider option that suits your needs and get the additional coverage needed. With a life insurance premium calculator, you can find out the additional premium you need to pay for the additional coverage.
An endowment plan is a simple financial instrument that functions as a life insurance product and a savings instrument at the same time. The dual role allows an individual to save for future needs while securing the lives of loved ones. This has made the endowment plan a popular choice amongst several individuals.
Also Read: Is Health Insurance Policy for a New Born Necessary?
