What is traditional insurance plans?
A traditional insurance plans, Endowment Life Insurance Plans offers policyholders triple profit in one single plan- saving, insurance and tax benefits. These plans are apt for those who want a guaranteed return. This policy provides insurance coverage to the investor during the policy term.
Why Endowment Insurance Plans?
- Guaranteed returns:These plans ensure that a stipulated amount is paid at the end of the term. If the policyholder lives until the maturity, he/she is given the assured amount. However, in case of the death of the insured, the amount is transferred to the nominee.
- Additional Bonuses:The policyholders with with-profit plans are provided with some additional bonuses as well. Under this, additional amount is added to returns at the time of maturity of the policy or in case policyholder’s death. Reversionary Bonus and Terminal Bonus are two types of bonuses.
- Things to remember:It is advisable to take the endowment plan for a minimum period of 15-20 years. The amount policy holder receives at the time of maturity is directly related to the number of years of accumulation.
- Twin Benefit
You get insurance + savings benefit. You get the money you invest with returns and also a periodic bonus at the maturity of the plan.
Types of Endowment Plans:
Types of Endowment Plans: Endowment plans can be broadly divided into two types.
- Endowment without profit: Under this plan, the beneficiary receives the assured corpus at the death of policyholder. This plan does not offer any bonus on the amount paid. It is suitable if you are looking for a life cover.
- Endowment with profit: In this plan, the policyholder, if survives the policy term, receives the assured corpus along with bonuses at the time of maturity. In case of the death of the insured, the beneficiary gets the assured amount as well as bonus for the number of years the policy was in effect.
Advantages of endowment plans:
💡 Dual benefit:Endowment plans:
Offer the dual benefit of long-term investment and insurance. Apart from paying the sum assured (or accumulated amount minus outstanding premiums, whichever is higher) to the beneficiary in case of the policyholder’s demise, endowment plans also pay a lump sum maturity amount (adjusted after considering company performance and premium defaults) if the policyholder survives the policy tenure. This is a key advantage of endowment policies.
Even though the returns on endowment plans may be lower, they are risk-free in terms of the sum assured.
💡 Disciplined savings:
Policyholders need to set aside a pre-determined amount towards the premium payment at a stipulated time interval, thus, encouraging a disciplined approach to saving.
💡 Assured bonus:
Endowment plans declare an annual bonus, typically paid out as a specific percentage of the sum assured. In case of the policyholder’s survival, additional bonuses accrued during the policy term are paid in addition to the sum assured. In case of death during the policy term, the death benefit is paid to the nominee, including the full sum assured along with the total accumulated bonus.
💡 Compounding returns:
A key advantage of endowment plans is that they fetch returns on a compounding basis during the policy term.
💡 Loan facility:
Policyholders can take a loan against an endowment policy as and when needed, and this is usually without the need to secure the loan against collateral.
💡 Double tax benefits:
One major advantage of endowment plans is that they offer tax benefits as per the Income Tax Act, under Section 80C on the annual premium, and under Section 10D on the death benefit.
💡 High liquidity:
Endowment policies are liquid in nature.
💡 Premium flexibility:
Another important advantage of endowment plans that you can pay your premium over a short period and enjoy the policy benefits over a long term. In case premium payments stop after certain minimum years’ premiums have been paid, a free paid-up policy for a lower sum assured can be secured – subject to certain conditions.
💡 Additional benefits/riders: Insurance companies:
Offer additional benefits to policyholders, such as marriage/education endowment plans and double endowment plans. An endowment plan also lets policyholders add additional riders for major surgical assistance, critical illnesses etc., by paying a marginal premium.
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