What
is endowment policy ?
An endowment policy is a type of life insurance plan that combines elements of insurance and
investment. An endowment policy provides
lump sum at the time of maturity. It is
an investment plan along with life cover.
It is provide initially define return at the time of investment. An endowment policy provide life courage
amount to the nominee, if the policy holder passes away.
Some are the key features of Endowment Policy:
Insurance
Coverage:
An endowment policy
provides a death benefit to the policy holder, in case the death of policy
holder during the policy term, the beneficiary or nominee will get the insured
amount plus all the premium paid along with the bonus. It ensures the financial protection for the
family or dependents of the policy holder.
Investment
Components”
An endowment policy is
purely designed for investment, a portion of the premiums paid by the policy
holder goes towards in low risk bonds, fixed income securities or sometimes
equities depends upon type of endowment policy has been taken.
Maturity
Benefit:
At the time of maturity
the lump sum amount or initially define amount and bonus earn will provide to
the policy holder. In short it consists
the guaranteed amount plus returns earned on the investment over the policy
term.
Savings
and Wealth Accumulation:
An endowment policy is
long term savings and wealth accumulation policy and disciplined savings by
investing equal regular premium over the policy term period.
The premiums paid during
the policy are eligible for tax
deductions under section 80C of the Income Tax Act. The returns amount at the time of maturity
are tax free under section 10D.
If the policy holder
decides to terminate the policy before its maturity can receive a certain
portion of the premiums paid with accrued bonuses.
Endowment policies are
popular in India because they offer both insurance protection and a means of
long-term savings. However, they may not offer the same level of returns as
pure investment products, and the premiums tend to be higher compared to term insurance
due to the savings component. It's essential for individuals to carefully
assess their financial goals and risk tolerance before investing in an
endowment policy.
Example:
John, a 29 year old professional working in a pharmaceutical
company, he wants to invest in a policy which is achieve his investment aim and
secure his family’s financial future behind him. After considering various policies, he
decides to go with the endowment policy.
Policy
Details:
Sum
Assured: John opts for a sum assured of Rs. 10,00,000 which will be paid out to his
family in case of his untimely demise during the policy term.
Policy
Term: He chooses a policy term of 20 years.
Premium
Payment: Annual premium of Rs. 50,000 for the next 20 years.
Maturity
Benefit: At
the time of maturity the if the John survive the entire term of the policy, he
will receive the maturity amount that is Rs, 10,00,000 along with bonuses earn
on the investments over the year.
Tax
Benefits: John can avail tax deductions on the premiums paid
under Section 80C of the Income Tax Act. And the maturity amount will be tax
free under section 10D.
Surrender
Value: In case John decides to surrender the policy before
its maturity, he can receive a surrender value, which will be a portion of the
premiums paid along with accrued bonuses.
Insurance
Benefit: If
John passes away during the policy term, his family or nominee receives the
insurance amount that is Rs. 10,00,000 and bonuses on investments.
Types of endowment policy
Unit Linked Endowment Plan
Unit Linked policies
are linked with market and depends upon the market fluctuations. Since it is depends upon market the risk is high. Premiums paid by investors are divides into
several units. In this plan the maturity benefits totally depends upon the
market performance.
Full Profit Endowment
In this plan the policy
holder will get the total sum insured and bonuses declared by the financial
institution. This plan is total risk
free or guaranteed.
