Are You Missing Out On These Benefits Of An Endowment Policy? Find Out!
An endowment policy is a contract with a life insurance company in which you promise to pay certain premiums in return for the insurer’s promise to pay you a particular sum of money at a specified time period. While it may be true that there are many other types of investments, an endowment policy can still be worth considering if you want to save up and get insured at the same time. In this blog, we’ll discuss some of the factors that can help you decide if an endowment policy is something that will meet your savings and insurance needs.
Benefits of An Endowment Policy
An endowment policy provides several benefits, including: 1.
Flexibility in Premiums
Endowment policies are generally of two types: limited premium payment term and single premium. Customers opting for limited premium payment terms can pay their premiums monthly, quarterly, half-yearly, or yearly. Customers also have the option of choosing from a wide range of endowment policies that suit their needs best. 2.
Riders are add-on benefits that can be bought in addition to the base policy. They provide extra protection to the policyholder. Riders are available at an additional cost (the premium paid for riders is variable). Various riders can be added to the policy to avail customized coverage based on your needs and budget. For instance, an accidental death benefit rider offers an extra sum insured if the policyholder dies by accident during the tenure of the policy. Similarly, critical illness cover protects you from unexpected expenses arising out of a critical illness like cancer, paralysis, or cardiac arrest. 3.
You can gain a lot of tax benefits by investing in an endowment policy. ● Tax deduction on premium paid: You are allowed to claim tax deductions on the premiums paid for your endowment policy under Section 80C of the Income Tax Act, 1961. The maximum deduction that you can avail of is Rs. 1.5 lakhs per fiscal year. If you have multiple policies, then you can claim tax deductions up to Rs 1.5 lakhs across all your policies and investments made under Section 80C of the Income Tax Act, 1961. ● Tax exemption on maturity amount: Any maturity benefits received from an endowment policy are completely exempt from income tax as per Section 10(10D) of the Income Tax Act, 1961. 4.
The liquidity of an investment refers to the ease with which that investment can be converted into cash. Although endowment plans are long-term investments, they do offer you the added benefit of being accessible at any point in time. In other words, the money from your endowment plan is not locked away, and you can withdraw it at any time. However, withdrawals made before maturity will result in lower returns on your investment and possibly a loss as well. This is because you would have incurred costs for withdrawing early but will not have received returns for the entire period of the policy’s tenure. 5.
One of the most attractive characteristics of an endowment policy is its ability to provide you with a steady income stream during your retirement years. The first few years of your retirement are usually the most active and expensive, but an endowment policy can help ease this burden by ensuring that you have sufficient funds (and then some) at your disposal with the power of compounding. As mentioned previously, an endowment policy gives annual payouts when it reaches maturity. The amount given to you will depend on how much money you’ve chosen to invest in your plan as well as how long you’ve held onto it (the longer, the better). You can also expect regular returns throughout the duration of your investment period, although these won’t be enough by themselves to cover essential expenses like medical bills and other emergencies 6.
If you are looking for an immediate source of finance, then your endowment policy can come to your rescue. You can approach the insurance company that issued the policy and request a loan against your endowment policy. The amount of loan that you will get from the insurance company is usually a minimum of 30% and a maximum of 80% of the surrender value of your endowment policy. To avail of this benefit, you will have to pay interest on the loan amount to the insurance company. 7.
The dual benefits of life insurance and savings are one of the best reasons to buy an endowment policy, besides the tax benefit of course. This is because, with an endowment policy, you get both the death and maturity benefits, unlike a term plan which gives only the death benefit. You can also avail bonus on your policy if you opt for it after five years; these bonuses usually accrue at regular intervals or annually to give you additional money upon maturity. 8.
Low Risk Involved
Many investments typically come with a high-risk tag. But this is not the case with endowment insurance plans, as they are low-risk investment instruments. This makes them suitable for all kinds of investors, right from conservative to aggressive ones. The reason why these policies are low risk is that they offer guaranteed maturity benefits and death benefits that can be enjoyed by your family upon your unfortunate demise.
All in all, an endowment policy is a great way to save money. It gives you peace of mind knowing that your family will be financially stable even if you’re not around to provide for them. You also get to enjoy some nice bonuses along the way, like tax deductions and loan facilities.