In recent years, the meaning and importance of life insurance have undergone major transformations. Life insurance today goes beyond coverage in an unfortunate event. Life insurance’s benefits make it an important part of a financial portfolio. If you too are looking for a life insurance plan that offers more, endowment plans are among the most preferred options. Choosing the right endowment plan can yield positive outcomes. Read on to learn some of the important factors to consider while buying endowment plan.
About Endowment Plans
An endowment plan provides you with the dual benefits of goal-saving and life insurance simultaneously. The major advantage of choosing this plan is that this helps you build a decent corpus to accomplish financial goals later in your life, be it your child’s higher education, dream travel or retirement fund. You can utilise maturity benefits to achieve any life goals that you want. Additionally, in the unfortunate event of your passing, the insurer will provide a death benefit to your appointed beneficiary.
Depending on your preferences and needs, you can choose to pay the premium in a lump sum, limited or regular manner. On the completion of your policy tenure, your savings are paid out in the form of maturity benefits. Essentially, you have the option to choose maturity benefits as lump sum amounts, in periodic form, or regularly. However, this maturity benefit payment cycle depends on the terms and conditions of your policy.
Top 5 Things to Know While Buying Endowment Plans
Buying an endowment plan is a major decision. Here are a few things that you need to know when investing in one.
- You need to chalk out your needs to see what plan you need to buy
Your needs are the most essential factors to consider while buying endowment plan. Before you invest in the endowment plan, you should prepare an outline of your future financial growth and objectives. This helps you comprehend the right policy that can aid you in covering essential expenses through your life years. So, do not forget to ask the following three questions before you buy an endowment plan:
- Do you want the plan to safeguard the future of your loved ones in case of your unfortunate demise?
- Do you want to use this as a savings fund for big life goals such as a retirement plan, your child’s education or their wedding?
- Do you want to purchase this plan to gain tax benefits only?
- You need to choose the right policy term
The policy term is a crucial period for an endowment plan because your policy remains valid only during that time. On completion of your policy tenure, you start gaining maturity benefits from your insurer unless you have a policy that pays out during the policy term.So, you should be very careful while choosing the policy term. If you are the breadwinner of your family, it is recommended that you buy an endowment for a longer tenure. Inadequate coverage may leave your family unprotected in case of an unfortunate event. A policy for a longer time that can help you fulfil your financial goals as well as protect the interest of your loved ones in the future. - Choose the additional riders carefully
In case you want to enhance the benefits of your chosen policy, you can choose add-on covers for your insurance plan. These add-ons, called riders, give you the benefit of enhancing the coverage benefits of your base plan. Some common riders include:- Critical Illness Rider
- Accidental Death and Disability Rider
- Income Replacement Rider
- Waiver of Premium Rider.
You can supplement your base plan with add-on cover by paying a slightly higher premium. Factor in the right rider options into your decision and choose the right coverage.
- You need to check the insurer’s reputation in the market
It is highly recommended that you choose an insurance plan from a reliable insurer. In today’s digital landscape, it has become very simple to analyse the performance of insurers through their websites and customers’ reviews. Gather information such as their customer approach, services provided and most importantly their claim settlement ratio. A good claim settlement ratio number ensures that your insurer has a positive approach to settling claims on time. - Endowment plans can come with a certain risk
Lastly, you need to know the most important thing about your endowment plan before you make any purchase. Certain life insurance plans that come with a maturity benefit may be linked to the market performance. For example, a ULIP invests your money in market-linked funds. Your maturity benefits may decline or advance depending on the volatility of the market during that time. So, if you are looking for market-related returns, make sure you invest as per your risk appetite.
Conclusion
Several things need to be considered before buying an endowment plan. Doing your homework includes analysing your needs, doing your research, comparing plan options, understanding tax benefits and market risks, etc. Spending enough time and effort can be very helpful in making well-informed decisions. It is also recommended that you buy an endowment plan at a younger age, as this helps you accumulate more wealth for your future goals.