When you plan to buy a life insurance plan, it is important to know the different types of life insurance plans available in India so that you can choose the plan which best suits your needs as it should be in line with your overall financial goals. When looking for savings as well as investments, an endowment policy may be a suitable option.
What is an Endowment Policy?
Offered by almost all life insurance companies, an endowment plan is a combination of life insurance and savings. Basically, any policy that offers life coverage and comes with a savings component can be called an endowment plan. This is a long-term contract where at the end of the term, or in case of the death of the insured, a payout is made. The policyholder agrees to pay a premium, and the insurer invests the sum in the money market.
However, if the insured individual passes away during the term of the policy, the appointed nominee receives the entire sum assured. In case the insured outlives the term, they receive the maturity benefit at the end of the policy tenure.
Is an Endowment Policy the Right Plan For You?
Are you wondering if an endowment plan is the right option for you? Consider this.
If you are the primary earner in the family and do not have savings that would be able to support your family in case something happens to you, you need to have a financial backup. Here, an endowment plan can prove to be very helpful.
Also, if you are planning to build some savings for a long-term goal, say your child’s wedding or maybe your retirement, along with the insurance coverage, you can create a corpus and fulfill your goals. Remember, endowment policies help inculcate the habit of disciplined and systematic savings.
A notable benefit of investing in an endowment policy is that you get to make tax savings. The premium that you pay, up to INR 1.5 lakhs, can be claimed against Section 80C. The death benefit is always tax-free in the hands of the nominee. Also, the maturity benefit is tax-free under section 10(10D). Also, in case of a financial urgency, your insurer may allow you to take a loan against the plan.
Just like any other financial product, you should put some thought into buying an endowment plan also. Chalk out your future plans, think about the term of coverage and the premium that you would be able to pay comfortably, and then take a call.