One of the most important steps that an individual takes in their financial journey is to buy a life insurance policy. It shows a high level of responsibility as the individual is concerned not just with the present circumstances of their loved ones, but is also planning to secure their future. A life insurance plan should ideally be bought by any person who has financial dependents. There are multiple types of life insurance policies in the market presently. The right choice for you depends on your needs and budget. If saving money for the long term is another of your objectives besides insuring your life, then you should consider an endowment policy.
What is an endowment policy?
It is a kind of life insurance plan that benefits the policyholder in two ways: the policyholder gets life insurance coverage and a savings plan under one product. So, the premium of your endowment plan works for both purposes. While one part helps create and retain the life cover corpus, the other part of the premium is parked in safe, low-risk instruments. Both of these are important facets of any financial portfolio, and an endowment plan helps you meet both under a single product. The premium of your endowment plan is based on various factors, such as the coverage, tenure, add-ons selected, and so on. A life insurance calculator can give you an estimate of the premium based on these variables.
Features of endowment plans
- Dual benefit of life coverage and savings
An endowment plan has the unique feature of mixing life coverage with a savings component. If the policyholder passes away, the nominees chosen by them receive the life coverage amount. On the other hand, if the policyholder survives the policy maturity, the policyholder receives the maturity proceeds.
- Bonus component
Endowment plans have an optional feature of a bonus wherein the policyholder receives an addition to their corpus. This occurs within a participating life insurance plan, in which the bonus is decided as per the profits of the insurance company. However, one must opt for this feature only if they can bear a certain amount of risk, as the returns are based on the profits of the insurance company.
- Riders available
You can opt for riders, such as critical illness rider, accidental permanent disability/death rider, waiver of premium rider, and so on, to increase the coverage of your base life insurance policy.
A step-by-step guide on how an endowment plan works
- Choose the right plan
First, you curate the right endowment plan for yourself. While doing so, ensure to be specific about the sum assured amount you want, the premium you can pay, the tenure you want the plan to be active for, the frequency at which you will pay the premium, and so on. Some plans may allow you to modify these settings after the purchase, while others may not.
- Start paying the premiums
Now that the policy is in force, the only thing you have to do is pay your premiums regularly. The premium will be used by the insurer in the manner mentioned above. It is important that the premiums are paid on time. If the premiums remain unpaid consistently, the endowment policy may lapse.
- Make a claim as per the situation
If you have allowed your endowment policy to go as planned, then it would have accrued a considerable amount by the time the maturity comes. If the policyholder has outlived this duration, then they can raise a claim on their policy and they will receive the accumulated savings along with the returns.
However, in the event of the policyholder’s demise during the policy duration, the nominees can raise a death claim. Once the required procedures are carried out, the life cover will be provided to the nominees. If the plan is a participating one, then the bonuses accrued till then would also be provided along with the life coverage amount.
When you buy an endowment plan, choose a sum assured amount that would help your loved ones comprehensively. You must take inflation into consideration as well. The amount should help them meet their daily expenses as well as pay off any outstanding debts, if there are any. You can use online tools, such as the human value life calculator or the life insurance calculator, to get accurate estimates as per the variables you input.