There are times in today’s modern world where one finds it almost irresistible to avoid purchases when such upgrade options are available to people at such brief time intervals with viable finance schemes or discounts; this leads in more disposable income yet lesser savings.
Savings indeed have been an important part as they prepare and support you for future contingencies. This is where an endowment policy comes into the picture.
What Is Endowment Policy?
An endowment policy is a life insurance policy cum savings account wherein apart from insuring the policyholder’s life and giving him/her cover; the policyholder gets a lump sum amount of money at the end of the term in a case where he/she survives across the policy term. This maturity term can help the policyholder meet various major expenses later in life, anything from the purchase of a new house to covering up their kid’s education expenses.
How Does Endowment Policy Work?
In traditional life insurance policies, the insuring company pays a lump sum amount in the event of death of the insured to the family. Whereas endowment policy over time, the insurer pays a certain premium just like normal life insurance policy, but there is a saving component to these policies. Endowment policies can be linked to ULIPs or non-ULIPs, however only that plan is denoted as an endowment policy which is a Non-ULIP saving linked life insurance plan.
Types of Endowment Policy
Endowment policies are of two types with profit and without profit. The key benefits of an endowment plan include financial benefits and protection for your loved ones. Endowment policies also help in providing Tax Benefits; some endowment policies could also be used to obtain a loan against the policy or in case of any financial emergency.
Why Should One Consider Buying Endowment Policy?
- Salaried people and professional people who do not have any other income source can rely upon endowment policy for their future needs.
- People who are risk-averse. People who would not want to invest in risky investments can invest in this plan as the returns are guaranteed.
- People who are not comfortable investing in Stock markets, bonds, etc. can invest in this plan as an investment opportunity.
Why Should Endowment Policy Be Bought?
- It helps in building a disciplined route of savings and building an investment as the individual needs to invest monthly or quarterly. Endowment policies, however, must only be undertaken if the individual can guarantee a steady flow of money towards their policy.
- An addition to life cover seems to be a protection. A life policy would help in case of an untimely death of the policyholder, but an endowment policy provides extra cover to the financial needs of the family and takes care of the nominees for life.
- Endowment Policy helps in providing tax benefits to their policyholders as the government has put some beneficial exemptions.
- In need or urgent finances, Endowment policy can be mortgaged for a brief time which would help in fulfilling an urgent need.
Checks To Perform While Buying an Endowment Policy
There are many options while choosing from a vast variety of endowment policies accessible in the market today. Initially, only government companies were present, but not private companies also can offer endowment policies to cater to customisable needs of the customers.
With clients being more aware of the products available, quite a few companies have come up with competitive features towards catering their clients with added benefits for retention. Selecting an appropriate policy depends upon several factors such as your current life stage, your stability, individual need, income, and risk appetite.
However, there are also certain things to be kept in consideration while selecting an endowment policy.
- Claim Settlement Ratio
The entire number of death claims accepted by an insurance firm, divided by the entire number of death claims received by the insurance company. It is usually measured for a period of one fiscal year. This is measured for all commodities of the corporation put together (not term insurance plans alone). This changes from company to company respectively. A higher rate helps in building trust with the company.
- Customer Service Track Record
Insurance companies have stringent policies which work on providing benefits not only to its customers but also their stakeholders as they are a profit-making entity, thus there are have been numerous cases reported with IRDA regarding unhealthy customer service track records by the company, it is imperative for the potential customers to judge and evaluate this by themselves as to whether to invest with these companies or not.
- Financial Standing of the Company
The financial standing of the company is a major aspect that needs to be considered. Companies can have major debts which might lead to closure as observed in the 2008 financial crisis. Not only does the financial standing affect the ability to deliver, but it also grants them the right to reject policies in case of insufficient funds. Consumers can approach the court to settle the claims, but it would rather be advisable to be prevent investing with these companies than being sorry.
While investing in an endowment policy, an individual should consider investing into something simple especially when it is the first time. Avoiding unnecessary complex features and benefits would be advisable unless the individual understands all of it in its fully capacity. Moreover, it is highly recommended that investors read the fine print thoroughly and clear every doubt before signing the policy document to safeguard their own interest.