Endowment Life Insurance Policy – Hedging Risks and Protecting Returns..!

Endowment Life Insurance Policy –

Hedging Risks and Protecting Returns..!

Endowment policies cover the best of both insurance and investment under a common umbrella. Contrary to previous belief that such type of policy is meant only for the super-rich, endowment plans are slowly gaining global recognition as the common man’s financial safeguard. Built in line with life insurance policy, the endowment category imparts protection to the policyholder in terms of life coverage and also inculcates savings habit which leads to a lump sum maturity figure. The maturity amount may be utilized for a variety of purposes including children’s education, retirement planning, buying a dream house etc.

Essential Characteristics

·       Life coverage given to the policyholder is known as sum assured. It is paid to beneficiaries on death of the policyholder or to the policyholder himself if he survives the policy term.

·       The return generated from investment might be declared as bonus.

·       Unlike mutual fund dividend or stock dividend the bonus is accumulated for payment on the maturity of the policy or death of policyholder whichever comes earlier.

·         The bonus declared is only accumulated and not compounded.

Pre-Requisites

·       This form of policy is perfect for policyholders having regular flow of income. Small businessman, salaried individuals and professionals like lawyers and doctors perfectly fit the bill for taking care of their long run financial security requirements. Risk free assured investment needs to be a part of every individual’s portfolio. This is the very reason behind purchasing endowment plans. However, with regular payment of premium being a pre-requisite, policyholders need to be guaranteed about having a steady inflow.

·       Longer the policy period, higher is the rate of return. People having irregular income are advised to opt for single pay or flexi pay plans.

·       Risk averse individuals who would rather settle for lesser returns than bear the brunt of additional risks are tailor made for the endowment plan offers.

·       People looking for a bigger life coverage and lower premium should go ahead with term plans rather than endowment ones.

Background Checking

With a plethora of available options, it becomes difficult to zero on the one will be of utmost benefit. However policyholders are advised to consider the following before taking their decision:

·       Premium rate

·       Track record of the insurance company in the field of bonus payment.

·       Gauging the relative worth of various endowment plans by calculating their ROI.

·       Customer service track record.

·       Claim settlement ratio.

·       Financial standing of the company providing endowment policies.

Benefits of Endowment Plan

·       Rendering financial protection to loved ones.

·       Obtaining loan against endowment policy.

·       Availing benefits u/s 10(10D) and 80C of Income Tax Act 1961.

·       Conducting goal based savings.

Conclusion

Endowment plans serve as a disciplined way of pooling surplus funds at regular interval to save for future needs. The risk cover on life comes as an added advantage which surely goes a long way in helping out a family in days of utmost necessity if something happens to the sole bread earner. The returns might be slightly on the lower side but given the tax benefits, guaranteed sum assured and risk free return it surely is a safe bet.

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