An endowment plan in life insurance is a policy that offers both life cover and a savings option. In case of a savings plan, the policy lets you earn a return on investment over a specific duration. You receive the lump sum when the plan matures if you survive the policy tenure. However, in case the policyholder passes away before the maturity date, the death benefit is paid to the nominees. It can help them take care of the policyholder’s financial liabilities and run the household without any hassle.
How does a life insurance savings plan (endowment plan) work?
An endowment policy works like any other regular life insurance policy. When you buy the plan, you have the opportunity to save regularly over a specified period. If you survive the policy term and meet the other policy requirements, the insurance company pays you the maturity benefit. You can use this money as per your requirements.
Things you must know before buying an endowment plan
Before you purchase an endowment life insurance, keep these things in mind:
- Plan early
Plan your investment early and buy the policy at the earliest. This way, you will have a longer time for building up the lump sum.
- Riders
Make sure that your policy includes riders, as that will help you make your future even more secure. Riders like term benefit, critical illness, and accidental death benefits can enhance your policy.
- Flexibility
When buying your insurance savings plan, make sure that the insurer offers the flexibility of premium payment. You must have the options for either paying regularly or paying a one-time premium.
- Bonus
Insurance companies share a portion of their profits from investments with the policyholders. This is paid as a bonus and the amount depends on the performance of the policyholder’s investments.
- Non-guaranteed and guaranteed returns
Insurance companies offer two kinds of returns when it comes to bonuses. The guaranteed bonuses are paid with either death or maturity benefit. The non-guaranteed bonuses depend on different variables like a bonus, which depends on the performance of the investment.
How to choose the right endowment plan
There are many endowment (savings plans) available in the market. However, not all of them will be suitable for your needs. You have to consider how much money you can invest in the policy, what your risk-taking tenacity is, and how much cover you actually require. Also, keep your insurer’s claim settlement ratio and track record related to bonuses in mind.
Endowment plans are costlier compared to most insurance policies. So, you will have to pay a higher premium to enjoy the maturity benefits.
Documents needed to apply for an endowment policy
These are the documents required for life insurance policy with savings:
- Photograph
- Age proof
- Address proof
- Completely filled application form
Be careful about choosing the endowment policy to make sure that you do not overpay. It is a profitable investment towards your future as long as you are careful about buying the right plan.