Given the number of investment products available in the market, many consumers get confused due to the lack of clarity on the same. While every product serves different purposes and is suitable for different users, it is important to understand what it offers. There are different types of investment that fit the needs of different investors. A life insurance policy is essential for individuals of all ages. An endowment policy is an important part of a life insurance policy and requires a thorough understanding. It is a policy, which agrees to pay a specific amount either at the time of maturity of the policy or on the death of the policyholder, whichever takes place earlier. It is a life insurance policy, which gives you a combination of an insurance cover and a savings plan. You need to save consistently for a specific period and enjoy higher returns on the policy.
The tenure of the policy varies from one plan to another and the benefits are tax-free. You have the right to sell or surrender the policy before the end of the tenure but it might not fetch you a high amount. Hence, it is best to sell the policy after a specific period to get a higher amount from the same.
Different types of endowment investment plans
It is important to understand the different types of policies available for you. When it comes to endowment policies, listed below are five different types you need to be aware of.
- Non-profit endowment policy
In this particular policy, there is a lump sum amount, which is promised to be paid to you at the time of maturity of the policy or death, whichever happens earlier.
- Traditional endowment plan with profits
This is a variant of life insurance policy, where you will receive an assured amount of money at the end of the policy term or at the time of your death. However, there is a clause, which is important here. The maturity amount will rise, as you get regular bonuses, which are guaranteed. There are also certain cases where a non-guaranteed bonus is applicable. It is known as a terminal bonus and the same is paid when the tenure of the policy ends. For people who are buying the policy with a specific objective like generating regular income or making a loan repayment, this option is the best.
- Low-cost endowment policy
In this policy, you get a mix of the traditional plan with the profit endowment feature. Here, the expected growth rate matches with the amount of mortgage and a reduction in the term will ensure that the mortgage amount will be paid out as the minimum amount in case of death of the insured.
Now, if the amount assured has risen to a specific rate, this particular amount will enable you to make the payment of an outstanding loan. If there is a decline in bonus rate, there will be no surety that the amount of return generated will be enough to make up for the outstanding amount on the mortgage. This policy will give a guaranteed level of the death benefit, which will be enough to make the payment of an outstanding loan.
- Unit-linked endowment policy
With this policy, no particular amount is committed at the maturity. The tenure of the policy and the mortgage tenure are equal and the premium amount will be used to purchase units from a policy as mentioned by the policyholder. The same units are then canceled to buy a life cover. The maturity amount of this particular plan will depend on how the purchased units perform. Hence, there is no guarantee that the maturity amount will be high enough for you to make the loan repayment. Now, in the case of the death of the policyholder, there is a guaranteed amount, which is equal to the outstanding loan amount.
- Traded endowment policy
You can also call it a second-hand endowment policy. In this plan, policy, the buyer will purchase the policy at a price, which is higher than the surrender value offered by the insurance company because the policy will fetch a higher amount at the time of maturity. At the time of purchase, the rights and benefits will be transferred to the buyer, and in case of death of the policyholder, the buyer will get complete benefit from the policy without any claim from the beneficiaries of the deceased.
Endowment plan is considered the best investment option in India but you need to compare the plans before making a buying decision. Keep your financial goals in mind and consider the amount you may need in the future. Based on the same, you will be able to decide the premium amount and the tenure of the policy. Endowment policies allow you to make an investment with high returns. When you choose an endowment plan, you can secure yourself manage to meet the various financial needs like education and buying a house.