Life insurance plans are essential financial products that you should include in your investing portfolio. Fundamentally, they provide life insurance. This means that if you die unexpectedly, your dependents and loved ones will be financially protected. Term life insurance plan provides a death benefit which the insurance company will pay out to your nominee in case of the policyholder’s demise. This can help your family get through the tough times without incurring additional financial hardships. However, today’s life insurance plans provide more than just life coverage. There are various types of life insurance, each with unique benefits. Endowment insurance is a type of life insurance that we are going to discuss in this article.
What is an endowment policy?
An endowment policy is a type of life insurance coverage that also provides savings. It allows the policyholder to save consistently and on a regular basis throughout the policy’s term. As a result, if the policyholder survives the policy’s term, the savings are paid out at maturity.
These maturity benefits can be paid out in a lump sum or on a regular, recurring basis, depending on the policy’s terms and conditions. This way, the savings component can help the policyholder achieve their long-term life goals or provide an additional source of income if necessary.
If the policyholder unfortunately dies before the policy expires, the insurer will pay the death benefits promised by the plan to the nominee assigned.
Things to consider when purchasing an endowment plan
As discussed in the preceding section, an endowment plan has many benefits and some of the benefits may weigh term life insurance plan. Nonetheless, before purchasing endowment insurance, you need to evaluate a few key factors. Here are some of the most important aspects to consider.
Amount of coverage you need: The first thing you need to evaluate is the amount of coverage you need. After all, the major benefit of an endowment policy is life insurance. And you need to ensure that the life cover is adequate for your family’s needs. To achieve this, include in their daily expenses, account for the most important life goals, and consider inflation. This might help you identify the amount of coverage needed. If you need more guidance, you can use a life insurance calculator to determine the appropriate amount of coverage for your family.
The policy term: The policy term is the period over which the life cover will be valid. It is also the time after which the money will be accessible to you in the form of maturity benefits, assuming you outlive the policy. A policy term that is too short may leave your family vulnerable sooner rather than later. So make sure you choose the appropriate policy term for your endowment strategy.
Premium payment alternatives: Some endowment plans may be single premium policies, which require a one-time, lump-sum premium. Others could be limited premium plans, in which the premium is paid for a set amount of time, or regular premium plans, in which the premium is paid for the entire policy term. You may also have the choice of paying your premiums on a monthly, quarterly, semiannual, or annual basis. These are also factors to consider and decide upon when purchasing an endowment policy.
Additional riders, if any: You can extend the benefits of your standard endowment plan by purchasing add-on riders. These riders provide payouts in case of specified insured incidents. The riders you can choose depend on the product’s terms and conditions. Furthermore, depending on the product, you can choose to include riders at the beginning of the policy or later. In addition, you must pay a rider premium or charge for each rider. So, consider these factors before making your decision, and only choose the riders you actually require.
Credibility of Insurance provider: Finally, be sure you’re purchasing from a reputable insurance provider. Check out existing customer reviews. Take a look at some significant figures, such as the insurer’s claim settlement and solvency ratio. The claim settlement ratio reflects the percentage of claims that the insurer settles, whereas the solvency ratio indicates if the company’s cash flow is sufficient to meet claim needs. The higher the ratios, the better.
Term Plan vs. Endowment Plan: Which Is Better and Should You Choose?
The choice between a term life insurance plan and endowment plans is solely dependent on one’s needs and expectations from a life insurance policy. Each of these insurance plans can only be a better alternative for someone if they understand how the policy will meet their requirements.
Irrespective of the term life insurance plan you choose, it is a better option than an endowment plan for someone who only wants life insurance to provide financial security for their family. This is because they can easily secure their family’s financial future at extremely low premium rates, knowing that their family will be able to live comfortably even if they are not present.
Furthermore, as a young earning professional, you may choose a term life insurance plan because the first objective for most people is to secure their family’s future. You will easily be able to get the best term insurance plan for 1 crore at a reasonable premium.
However, for many others, accumulating a long-term savings fund is just as crucial as protecting their families. Endowment plans can be a suitable option for such people, even if it means paying a little higher premium in order to offer life insurance while simultaneously saving money. If someone has a long-term financial goal that they cannot meet with their current income, an endowment plan can help them reach it by requiring disciplined contributions during the policy term. The guaranteed savings will be available to them upon maturity, and in the event of their untimely death, it will be paid out to their families.
Choosing between a term life insurance plan and an endowment insurance plan is simple once you have created a financial strategy that takes into account your family’s needs, financial goals, and the future financial stability of your loved ones.
