Harsh and Kashmala were enjoying a sumptuous lunch of naan and butter chicken in their cosy dining room. As the siblings savoured the delicious meal, their conversation turned to a topic that was new to Kashmala – the endowment plan.
Kashmala was puzzled and asked, “What is an endowment plan?” While I have read about it in newspapers but never browsed online to find out what it is.”
Harsh, always ready to help, put down his fork and began to explain. “Well, an endowment policy is a kind of plan that not just offers financial protection to your dependents if something unfortunate happens to you but even provides savings constituent. It is similar to a two-in-one pack kind of thing.”
Curious, Kashmala leaned in to listen more attentively as Harsh continued to share the details.
Harsh began listing the top benefits of an endowment plan –
Savings
Endowment plans are unique as they combine insurance with savings. A portion of your premium payments is allocated toward investments, typically in low-risk instruments like government bonds or fixed-income securities. Over time, this component accumulates, helping you build a corpus that can be used to meet future financial goals.
Tax benefits
Under the Income Tax Act in India, the premiums paid towards an endowment plan are eligible for tax deductions under Section 80C. Moreover, the maturity proceeds are tax-exempt under Section 10(10D). This means that you not only secure your family’s future but also enjoy tax benefits, reducing your overall tax liability.
Maturity benefit
If you survive the policy term, you are entitled to receive the maturity benefit. This includes the sum assured (the guaranteed amount) along with bonuses or returns generated by your investments. It provides you with a substantial lump sum, which can be used for various purposes like funding your retirement or financing your child’s education.
Life cover
Endowment plans offer a life cover that serves as financial protection for your family. In the unfortunate event of your demise during the policy term, your beneficiaries will receive a lump sum payout. This payout can be crucial for covering immediate expenses, such as outstanding debts, funeral costs, and day-to-day living expenses, ensuring that your loved ones are financially secure.
Financial discipline
Paying regular premiums for your endowment plan cultivates financial discipline. Knowing that you must make consistent payments to keep the policy active encourages you to stick to a savings plan, which can be invaluable in achieving your long-term financial goals.
Flexibility
Endowment plans typically come with flexible premium payment options. You can choose to pay premiums annually, semi-annually, or monthly, depending on what suits your financial situation best. This flexibility accommodates changes in your income or expenses over time.
Loan facility
Many endowment plans offer a loan facility, allowing you to borrow against the policy’s cash value. This can be a financial lifesaver during emergencies, as it provides you with a source of ready funds without the need to go through a time-consuming loan application process.
Bonus additions
Depending on the plan and the insurer’s performance, policyholders may receive annual bonuses. These bonuses enhance the maturity benefits, offering an additional source of returns on your investment, and making the endowment plan even more lucrative.
Wealth accumulation
The savings component of an endowment plan gradually accumulates into a substantial corpus over the policy term. This can be used to meet a range of long-term financial goals, such as buying a house, funding your child’s higher education, or ensuring a comfortable retirement.
Guaranteed returns
One of the primary attractions of endowment plans is the guaranteed returns they offer. Knowing that you’ll receive a predetermined amount at maturity provides peace of mind and a sense of financial security, which is especially valuable for risk-averse individuals.
Protection against uncertainties
Beyond savings and investment, an endowment plan serves as a robust financial safety net for your family. In case of your untimely demise, the life cover ensures that your loved ones have the financial means to maintain their standard of living and meet their financial obligations.
Rider options
Many endowment plans allow you to customise your coverage by adding riders. Personal accident insurance, for example, can be added as a rider, providing extra protection against accidental injuries and disabilities, and enhancing your overall coverage.
Surrender value
While it’s advisable to hold an endowment plan until maturity to maximise returns, you have the option to surrender the policy if needed. Surrendering the policy before maturity provides you with a surrender value, which can be useful in times of financial distress.
Mental peace
Knowing you have an endowment policy endows you with mental peace. It relieves you of the continuous worry of unanticipated financial setbacks and offers considerable security that your loved one’s future is protected even during your absence.
Liquidity and emergency funds
Endowment policy offers enhanced liquidity features that can be specifically advantageous during unanticipated financial crises. Additionally, to the loan options mentioned previously, some endowment policies might permit partial withdrawals as well as surrendering a part of the policy, endowing access to the required funds. This liquidity serves as a valuable resource for managing exigencies without disrupting your financial goals or exhausting your savings.
Legacy planning
An endowment policy allows you to leave a financial legacy behind for your dependent or heir. By carefully planning out and investing in this plan, you can make sure your loved ones inherit a considerable financial cushion, setting them towards a prosperous and secure path.
As Harsh completed explaining the advantages, Kashmala was impressed and said, “Wow, Harsh, I had zero knowledge of what endowment policy was and the benefits attached. It sounds like an amazing financial strategy to include in an investment portfolio.”
Harsh grinned and replied, “Yes, Kashmala, it is. It not only offers financial protection but even allows you to save as well as grow your wealth. It is like securing your future while enjoying your present.”
The two siblings continued to enjoy their lunch, now with a deeper understanding of the endowment plan. They both realised that planning for the future was as important as relishing a delicious meal, and an endowment plan could be their recipe for financial security and peace of mind.
