Did you know the average savings account interest rate is less than 4%? In such a scenario, you may be tempted to up your risk tolerance to get more returns. Endowment policies can be a handy low-risk solution to this. Endowment plans and bonuses have historically been shown to give more than savings account returns. This makes them a compelling investment option for your hard-earned money.
Simply put, endowment policies provide life insurance coverage and also help you save for the uncertain future. The twin benefits of financial protection and long-term savings offer a good combo for investors. Let us have a detailed look.
As investment products, endowment policies give you insurance coverage and investment returns. A portion of your premium goes for insurance coverage, similar to term insurance. The majority balance premium of an endowment policy goes into investments. In India, endowment policies over the policy term offer a guaranteed sum assured (insurance component) along with bonuses or returns (investment component).
Historically, the performance of underlying investments of endowment policies averaged between 4% to 7% per year. This should give you a broad idea of endowment policy returns.
There are different types of endowment policies available. This list includes traditional endowment plans, Unit linked endowment plans, and with-profit endowment plans. Each type offers unique features such as flexibility in premium payments, options to receive bonuses etc.
Endowment policies are like a financial safety net, with a return kicker. They offer a guaranteed payout at the end, no matter what. In times such as these where costs are rising faster than your salary, it is tough to be disciplined. But knowing there's a lump sum waiting can be motivating when you invest in endowment policies.
Endowment policies offer two main benefits: guaranteed returns and maturity benefit. So, this type of traditional policy ensures your hard-earned money grows safely and steadily over the premium period.
Life insurance cover is also a key feature of endowment policies. The cover provides financial security for your family in case of an unfortunate event.
Importantly, endowment policies also provide tax benefits. The policyholders can claim deductions of up to ₹ 46,800 p.a. on premiums paid under Section 80C and the returns received are exempt as per the conditions under Section 10(10D) of the Income Tax Act, 1961. Thus, endowment policies are a tax-efficient investment option under the old income tax regime.
Disciplined savings is an integral part of these policies. With periodic premium requirements, endowment policies make it easy for you to be disciplined. You invest a fixed amount regularly, which helps in building a corpus.
Endowment policies function as a dual-purpose financial instrument, blending life insurance coverage with a savings component. Policyholders pay regular premiums over a defined period.
There are different premium payment options available. You can choose regular premiums. These are paid throughout the policy term. Limited premiums require payments for a few years only. A single premium facility is for those who can make a one-time payment for the endowment policy. Each premium payment option offers flexibility based on specific needs.
The policy term can range from 5 to 30 years. Most endowment policies mature at the end of the policy term. This means at the end, you get a neat lump sum.
Endowment policy payouts come in various forms. One, if you survive the policy term, you get maturity benefit. Two, survival benefits are a type of periodic payment given during the term. Third, death benefits go to your family if you unfortunately pass away. So, the payouts provide all-weather financial security.
It is crucial to pick what suits your financial goals. Endowment policies offer both security and growth. They're an ideal combo of safety and savings.
Endowment policies provide both insurance and savings. Let's compare them with other options.
Endowment Policies vs. Term Insurance
Endowment policies offer savings and life cover. Term insurance provides only life cover. If you are also looking for returns, endowment policies may be more suited for you. Term plans tend to offer higher sum assured for relatively lower premium. On the other hand, sum assured may be lower in endowment plans but they offer wealth creation over time.
Endowment Policies vs. ULIPs
ULIPs (Unit Linked Insurance Plans) combine insurance and market-linked investments. For the higher risk, ULIPs offer potentially higher returns. Endowment policies offer guaranteed returns.
Don't wait to secure your financial future. Explore the range of endowment plans available and choose the one that aligns with your goals and aspirations.
Disclaimer: This content is part of a marketing initiative. No TNIE Group journalists were involved in the creation of this content.
