What is endowment plan? This is one of the most common questions that most people raise. There are many reasons why people have different opinions on the benefits of purchasing an endowment plan. Some believe it is an excellent way to save for retirement, while others think they are too costly and not worth the investment. Endowment plans are a type of insurance plan, which functions as an investment.
The money invested in the policy earns interest over time, and this accumulation becomes your cash value. Thus, it is one of the best investment options that you can choose. In this blog post, we will discuss what is endowment plan, its variants and its benefits.
Let’s get started.
What is an Endowment Life Insurance Plan?
What is endowment plan? An endowment policy combines life insurance with the advantages of a savings account. You can still save routinely over a certain period to build up a substantial corpus which you can enjoy when you reach retirement age. The Payment Assured will be paid out over a lump sum if somehow the policyholder endures the policy period.
An endowment policy can help you achieve financial goals like paying for your children’s school or marriage, buying a home, or even arranging your retirement.
What are the Different Types of Endowment Plans?
Guaranteed Endowment Plan
This is the most commonly used endowment plan. It offers different types of benefits during the policy term like death benefit, maturity value at the end of tenure, etc.
Unit Linked Endowment Plan
In the ULIP, the premium you pay is split into two portions in unit-linked endowment plans. One half is used to buy units in various investment funds based on your preferences, while the other is used to pay for your life insurance coverage.
Low-Cost Endowment Plan
This is an investment plan with a fixed maturity period, which will run for 15 years. The tenure of the policy depends on your age when you apply for it. It can be extended up to 25-30 years maximum if the premium remains unchanged throughout the insurance term.
Full/With Profit Endowment Plan
In this plan, the policyholder receives a maturity benefit in addition to the cash value. The latter is given at premiums paid by him and accumulated on his behalf with interest during the entire insurance term.
Non-Profit Endowment Plan
If you’ve known What is endowment plan? Then you might also have heard about the non-profit endowment plan. Non-profit endowment plans are typically purchased by individuals who want to earn tax-free returns on their savings. You can also watch your money grow at a steady rate without having to pay any taxes because no withdrawal is made before maturity.
Benefits Of Purchasing Endowment Plan
Maturity Benefit: The endowment plan matures at a predetermined date, which may be on the death of the life assured or on attaining a certain age. The maturity benefit received is tax-free.
Higher ROI: Endowment plans generally offer a higher rate of return on investment. The more years you go with an endowment, the better is your ROI. You can expect anywhere between 12% to 20%.
Flexibility to Choose Cover: Some insurance companies offer a range of different covers to their customers, while others have one basic plan for everyone. The most significant benefit of purchasing endowment plans is choosing the cover as per your financial status and needs.
Loan Benefit: Endowment plans can also be used as a loan. If you cannot pay off your home or car loans, then these endowment plans might help repay the same.
Premium Payment: Insurance companies usually allow flexible premium payment options for endowment plans. Apart from the regular monthly installments, they also offer quarterly and half-yearly payments.
The Bottom Line
There are many different types of endowment policies, and the benefits you get from them will depend on which type you choose. But there is no denying that these plans offer several advantages to their policyholders throughout the years. So we hope that you’re now clearly aware of What is endowment plan? And how advantageous it can be for you.