Life is so unpredictable. One day, you’re here; the next, you’re gone. But your loved ones must live on; they deserve nothing short of the best. That’s where life insurance comes into the picture to help them out with a lumpsum amount paid as a death benefit when they struggle to accept the loss of someone they loved so dearly.
But how about when you’re alive and well and need a substantially profitable investment while protecting the interests of your family?
That’s the job for endowment plans. Let’s take a detailed look at what endowment plans are, how they help the policyholder and the beneficiaries, and the advantages of endowment plan for retirement planning. Yes, that is possible.
What are endowment plans?
Endowment plans are variations of life insurance that not only take care of your family in case you meet an untimely demise but also help increase the corpus with bonuses when you survive the tenure of your term plan.
The premiums you pay toward your endowment plans cover two essential benefits. If you, as the policyholder, have an endowment term plan for 30 years and unfortunately pass away during that duration, the insurance provider pays the lumpsum sum assured to your nominees or beneficiaries as the death benefit.
However, the plan will mature if you survive the 30 years of your endowment term insurance tenure. In that case, all your premiums aren’t a complete loss. Instead of the death benefit, you receive the maturity benefit. Even better, the lump sum maturity benefit comes with bonus amounts accrued throughout your tenure.
What are the different types of endowment plans?
There are several ways you can reap the benefits of endowment plans. Here are some of the popular types of endowment plans and how they benefit you as well as your nominees:
1. Regular endowment plans –
These are your typical endowment plans that offer death benefits to your family in cases of an untimely demise. They also offer maturity benefits to you as the policyholder if you survive the tenure of your endowment plan.
2. Participating endowment plans –
In these policies, you agree to be a participating member. That means the money you invest in your endowment plans in the form of premiums is used to earn bonuses.
If your endowment plan is used to pay the death benefits, then your nominees receive the sum assured. However, suppose you are a participating member, and your plan matures because you survived the tenure of your endowment plan. In that case, the insurance provider pays you the maturity benefits in a lump sum amount along with accrued interests. You can use the funds you receive to pay for personal commitments, investment in the market, home improvement, a child’s education plan, or anything else you like.
3. Non-participating endowment plans –
These endowment plans are much like your regular policies. The insurance provider pays death benefits to your nominees in cases of untimely demise. However, if the plan matures, you only receive the maturity benefits. You will not be entitled to the bonuses accrued in participating endowment plans.
4. Child-oriented endowment plans –
This is the way to go if you want to secure your child’s future with an endowment plan. It comes with a waiver on premiums in case the parent meets an untimely demise.
It works by purchasing the child-oriented endowment plan and paying the premiums. If, sadly, as a parent, there is an early death, the premiums for the plan are waived off, and the policy stays intact. The policy matures, and the child receives the benefits of the endowment plan. They can use it to pay for their education, wedding, or anything else.
The lump sum corpus helps the child tackle financial challenges.
5. Money-back endowment plans –
These endowment plans help you reap the benefits of your policy while your plan is still active. The way it works is that you decide on the sum assured, tenure and premiums. Then, you and the insurance provider agree upon regular intervals when your policy will pay parts of your accrued premiums during the tenure.
You receive the money at regular intervals, and the remaining accumulated sum is paid as a maturity benefit if you survive the tenure of your endowment plan. However, if you meet an untimely death, your nominee receives the entire sum assured as agreed upon in the contract.
Is an endowment plan for retirement planning a suitable option?
An endowment plan is a life insurance policy with a corpus fund in case of maturity. If you pay your premiums periodically and survive the tenure of your endowment plan, then it can serve as an excellent corpus fund for your retirement years.
The policy accrues interest over the years. Therefore, if your plan matures, it becomes an endowment plan for retirement planning instead of a simple life insurance policy that pays death benefits to your nominees.
Let’s say you purchase an endowment plan for a 30-year tenure with a 1 crore sum assured. The exact amount may vary, but for this example, let’s assume you pay INR 20,000 in premiums yearly. Paid over 30 years, you accumulate 20,000×30 in funds, which is INR 6,00,000 in the account of your endowment plan. So, if you survive the 30-year tenure, the plan matures, and the insurance provider pays you that money back.
However, that is only some of what you receive. You also accrue interest on the INR 6,00,000 you invested in your endowment plan as premiums. Again, the interest rate will vary, and so will the method by which it is paid out, depending on the type of endowment plan you chose.
The endowment plan for retirement planning benefits is that you receive the maturity benefits along with the interest as bonuses. It is a lumpsum amount that you can further invest in the market or simply in your bank account or use to pay back loans and other financial debts that you may have incurred throughout your life. In your retirement years, you have a huge sum of money handy to take care of yourself and your family.
Conclusion
Endowment plans are excellent financial tools. By choosing the right kind of endowment plans, you can secure your family’s financial future and reap benefits during your life. You can also use endowment plans for retirement planning as an added bonus if you live a healthy and long life.
