An endowment plan is a life insurance policy which provides the dual benefit of life insurance coverage for the policyholder and allows them to save regularly over a policy’s tenure. Unlike a regular term insurance policy, in the event that no death benefit is claimed during the tenure, a lump sum amount will be returned to you at the time of maturity. Endowment plans offer several benefits that make many people want to choose it over other life insurance policies. If you are thinking about purchasing an endowment policy, here are few things you should know before you make your decision. 

 1. What are the features of an endowment plan?

Endowment plans provide you an opportunity to save towards your long term goals, in addition to life coverage. Usually, these policies generally have a tenure of between 10 to 25 years. The sum assured and applicable bonuses are paid to the policyholder at the time of maturity if death benefit is not claimed during its tenure. Apart from offering tax benefits under Sections 80C and 10D of the Income Tax Act, an endowment plan can be used as a security to obtain a loan since the sum assured is paid as a lump sum only at the time of maturity.

 2. Are there different types of policies?

Endowment plans fall under two broad categories: with-profit and without-profit. A with-profit policy includes a number of reversionary and terminal bonuses that add to the main sum assured upon maturity of the plan and offer an additional benefit.  However, since none of these revisionary amounts are legally agreed upon at the start of the policy term, they are more prone to risk. A without-profit policy does not include any of these additional bonuses, and can be seen as a regular life insurance plan with a maturity benefit. 

 3. Who is an endowment plan most suited for?

The dual nature of an endowment plan provides life coverage and allows you to save at the same time. In the event that no death benefit is claimed, these savings become available to you only upon the maturity of your policy. Given these factors, endowment plans are ideal for those individuals who tend to spend excessively, but still want assurance of a financial stronghold towards achieving their long term goals – like buying a house, financing children’s higher education or marriage, retirement and so on.

 4. What are the apt circumstances for buying an endowment plan?

As with any instrument that aids planning towards your long term goals, an endowment plan should be purchased as early as possible. Apart from giving you life coverage early on, it also provides you a sufficient time horizon to build a substantial amount of savings. In line with this, your endowment plan should satisfy three objectives: 1) provide financial stability for your loved ones; 2) help you build your savings; and 3) assist you in achieving your long term goals. However, it is important that you purchase a policy only when your cash flow is stable, so that you don’t default on paying premiums – which are higher than other term policies.

 5. Is there anything else to check before purchasing a policy?

When it comes to choosing the right policy for you, always compare your options first to know that you are getting the best deal, from a company you can trust. Once you have shortlisted a few insurance companies, you can make a choice by looking at their track record, financial stability, customer service and claim settlement ratio. Finally, before you purchase a policy, ensure that you have thoroughly understood all of its terms and conditions. At this stage, you may want to consult your financial advisor before proceeding with the purchase. 

Many people find endowment plans attractive because of the dual benefit they offer. With these points in mind, you can move forward on your decision to purchase an endowment plan that will be appropriate for you.