How to Buy the Best Endowment Policy in India
An endowment policy is a type of life insurance policy designed to pay a lump sum on maturity or on the death of the policyholder. It can be used to build risk-free savings while providing financial protection for families in case of any tragic event. This simplicity and lucidity of an endowment plan have over the years made it an attractive saving plan for all. It acts as the shield of financial security for the policyholder and their family.
An endowment plan provides you with the advantages of both insurance and investing. A portion of the premium goes towards the insurance coverage under this policy. Besides this, an endowment policy also helps you to create a corpus for the future so that you can meet the long-term and short-term financial objectives of life.
What is an Endowment Policy?
A standard insurance policy pays out a lump sum amount in the event of the death of the policyholder to the nominees. An endowment policy works the same way, but it has an additional clause that states that a lump sum payment will be made to the insurance holder only if they survive till the end of the policy tenure. Therefore, an endowment plan ensures that the policyholder gets a maturity amount if they survive the term, and if they do not, the nominees get the amount assured to them.
There are variations to the payout clause in endowment plans; some insurance companies have a lump sum payout on the diagnosis of a critical illness or other critical events.
There are various health insurance plans available in the market provided by different insurance companies, so it is important to know what is health insurance before buying any of them.
Types of Endowment Policy
Here are the different types of endowment policies you need to know about:
- Unit Linked Endowment Plan
This is a fixed-term investment plan which also provides the life coverage benefit. Under this type of endowment plan, the premium paid by the insured is allocated between different units held under a particular investment fund, as chosen by the insured person. The return on investment is entirely dependent on the market performance of the fund.
- Full-Endowment Plan
This plan is also known as a with-profit endowment plan. It guarantees you a certain amount at the end of the policy period, known as the sum assured. The insurer pays the sum assured to the nominee if any unfortunate event occurs to the policyholder.
- Low-Cost Endowment Plan
This plan allows you to save and collect the funds for financial needs that might arise after a specified period of time, such as re-payment of loans, mortgages, and more.
- Non-Profit Endowment Plan
This plan is similar to the full-endowment plan and the sum assured in the plan is pre-fixed. However, there are no bonuses. Instead, a guaranteed policy amount is given at the time of maturity.
Things to Consider Before Buying the Best Endowment Policy
You should understand the following things before buying an endowment plan.
Start Planning Early
Making investments at an early age always offers a long horizon to invest and multiply your wealth. This aids the insured in building a good corpus over time. Starting an early investment can ensure disciplined savings and better returns ( all thanks to the power of compounding)
Check the Flexibility Option
There are many flexible options when it comes to the premium payment. If the insured is a salaried individual, they can choose a regular payment endowment policy. There are single payment options as well for individuals who have irregular income.
Select a Policy That Offers Riders
A lot of insurance providers offer additional benefits like education endowment, double endowment policy, or a marriage endowment policy. You must keep such riders in mind while purchasing any of them. Some insurers also provide additional riders for critical illness or surgical assistance.
Check Claim Settlement Ratio (CSR)
You should choose an endowment plan from an insurance provider that has a high and consistent claim settlement ratio. Moreover, a simple and fast claim process should be preferred.
An endowment policy is an excellent option if you want to have the best coverage. With the guaranteed sum secured at maturity, your capital investment is safe. Your fortune will also expand as a result of regular bonuses, and you will have a steady flow of income even after you have retired. An endowment plan helps you to achieve all of your financial objectives simultaneously.