Term plan was a pure “RISK PRODUCT”. Endowment plans are an “INVESTMENT PRODUCT”. There are two benefits that you enjoy with such a plan , one is a maturity benefit that is paid to the policy holder if he survives the term, if he does not then the beneficiary gets the death benefit and also the maturity benefit at the time of maturity. There are two pay out’s happening in case of death happens.
These products became an instant success as they provided the life cover with death and maturity benefits. Markets are loaded with variants of the same category as they seem more investor friendly as opposed to a normal term plan.
Let us try and understand how you could pick the right product. Here are a few things you should know.
Premiums on a higher side
There are two benefits associated with such plans and this is more of an investment product, hence the premiums on such plans are higher as compared to a term plan. If you are looking for a risk cover for your family, then I suggest you look at a term plan as it costs less, if you need an investment component, then it will cost you more.
The sum assured plus bonuses declared by the insurance company during the term of the policy, accumulate to become the maturity benefit which will be paid to the policy holder if he survives the term
Bonuses available on endowment plans
These are of two types:
- Re visionary bonus – Bonus that is payable at the time of maturity but gets accumulated yearly based on the performance of the insurer. This is also called a regular bonus.
- Terminal bonus – This is a kind of loyalty bonus paid by the insurer at the time of maturity.
Compounding of bonus
No, the bonus accumulated and paid at maturity does not get compounded.
Types of endowment plans
Currently there are following variants available:
- Unit linked endowment plan – In such plans, the benefits are paid out in units, the number of units you own depends on the premium being paid and the current market price of the underlying asset. You can opt the underlying asset by choosing a combination of debt and equity based on your risk appetite. This works more like an insurance packaged with a mutual fund.
- Full endowment policy – This is a with profit endowment policy, where the sum assured and death benefit are equal at the beginning. Assuming growth through bonus being paid, the final pay-out is much higher than the sum assured.
Change in beneficiary
In an endowment plan, there is provision for the same. This needs to be done before the maturity of the plan and the same has to be intimated through a form – “Application for change in policy contract”. These forms are available with all service providers.
Money back plan
This is a unique endowment plan. The idea here is to help you get funds when you need it the most, you need not wait for the maturity of the policy. The maturity benefit is paid back to you in regular intervals after a few years from the commencement of the policy. The death benefit clause remains the same and is paid to the beneficiary if you fail to survive the term.
These policies are considered to be the best and are available across all service providers.
Submission of medical report
Depends, your age at entry, sum assured, financial background, personal and family history are all factors that could decide this.
Endowment plans can be used as collateral for taking a home loan as there is an assured benefit. You can do this only after the completion of three years of commencement of the policy.
All premiums paid are exempted up to a maximum of Rs. 1, 50,000 under section 80(c) of the income tax act. Claims received by beneficiaries and bonus received by the policy holder are exempted under section 10 (10) D of the IT act.
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