When should I start an endowment policy? –

Meaning of the endowment plan:

The endowment plan works with dual benefits of insurance and savings. The endowment plan provides life insurance coverage and a maturity benefit. The expiration benefit is granted to the policyholder on survivorship, after an agreed period of time.

For good financial planning, it is important to save regularly, to create wealth with guaranteed returns. All three are met through endowment plans.

The life coverage benefit secures the future of the family.

endowment plans give decent returns to create considerable funds. Endowment plans are meant to serve different investment purposes for different stages of life. Endowment plans continue to pay benefits unless and until premium payments stop.

Types of endowment plans:

1. Staff linked to the unit: This is a type of endowment plan where funds are invested in the markets to compound returns. The returns you get on this investment are completely dependent on the performance of the market.

2. Pure Endowment: Pure endowment plans work entirely on the bonus structure. The performance of the company is directly related to the bonus payment on the investment.

The yields you earn at maturity will be significantly higher than the expected yield.

3. Low Cost Endowment: Low-cost endowment plans are designed with the aim of repaying mortgages. The lump sum amount is given on the expiration or death of the policy holder. The lump sum received is used to make partial payments or offset entire mortgage loans.

4.Nonprofit Endowment: The non-profit endowment plan, as the name suggests, does not participate in the profits made by the company. Therefore, no bonds are added to the investment at maturity. The sum insured is paid on death or maturity, whichever comes first.

5. Unitized with provision of utilities: Unified Endowment Plans work with a guaranteed payback along with unified market-linked performance. The guaranteed amount is not affected by market uncertainties.

Right time to start:

Endowment plans get a person started looking at financial goals and give them a push to save money.

  • An endowment plan can be started once there is steady and stable income.
  • The idle age to start would be an early age (around 25 years old) when an individual starts to work. A small portion of your income will go toward investing and you’ll also make saving a habit. This will ensure that your present and future goals are met on time.
  • A 30-45 year old can save for life’s non-negotiable financial goals. Goals include children’s education, marriage, and regular income after retirement.

Saving is a habit and there is no defined right time. The above is the right time to start, considering the product’s entry age and different life milestones.

Benefits of starting early:

“Save money while you are earning because money will save you when you are not earning”

As discussed earlier, endowment plans make disciplined savings. These plans also help in creating wealth.

Starting early will always help you save more over a period of time and will help you learn and grow from mistakes made in the financial aspects of saving and investing.

Now let’s look at an overview of how to start an early investment in endowment plans:

  • Endowment plans work with the power of compounding. Adding interest on interest will build more wealth if invested over a longer period of time.
  • The bonuses declared in the endowment policies give a boost to the accumulated investment amount.
  • Life insurance coverage will take care of the family’s expenses in the event of the death of the policy holder.
  • Endowment plans started early will build wealth for a variety of life goals, such as children’s education, marriage, and retirement planning.
  • Endowment plans can be started with a minimal premium. Starting early can help you save more and build up the right amount of money when your policy matures.

General benefits of investing in an endowment plan:

  • Risk: Endowment plans are low-risk investments. It can be started by a person even in his late 50s as both the principal amount and the returns are insured.
  • Savings: Endowment plans help in disciplinary savings. The habit of regular savings is the first correct step towards financial planning.
  • Security: You can secure your future and your family’s future with long-term savings.
  • Tax benefit: Endowment plans allow you to take advantage of the tax benefit under section 80 (C) and grant a tax-free expiration under section 10 10 (D).
  • Rent for life: Lifetime endowment plans work as lifetime income for investors.
  • Survival Benefits: Endowment plans come with dual benefits i.e. death benefit and survivor benefits. Where the death benefit is paid upon the policyholder’s death to the nominee, the survivor benefit is paid at policy maturity to the policyholder.
  • Investment choice: Endowment plans are market linked and non-market linked. You can try both and add both plans to your investment basket.
  • Premium payment flexibility: If you are salaried, you can opt for regular premium payments. If you do not have a fixed income, you can opt for a single investment (single premium).
  • Carefree life: Endowment plans help you live a carefree life and ensure peace of mind with life coverage attached to the policy. In the event of the death of the policyholder, the nominee gets the death benefit.
  • Bonuses: In traditional endowment plans, review and terminal bonuses are added at maturity. Bonds enhance investment and are added to the accumulated fund at maturity.
  • Passenger benefits: Endowment plans can be enhanced by adding additional clauses at a nominal cost. The riders are the accidental rider, the critical illness rider, the premium waiver rider, and the permanent disability rider.
  • Ease of loan: The loan facility can be used in an endowment plan once the surrender value has been acquired.

Conclusion:

Endowment plans work differently for different groups of investors. Being one of the oldest types of investment in the insurance market. Endowment plans still have market sustainability due to the established mindset of people.

Endowment plans are savings-oriented plans along with accompanying coverage to provide security for investors’ loved ones.

Endowment plans are designed for someone who is risk averse and wants a stable return to maturity. The main component of the invested funds goes to debt instruments, which makes it a low-risk investment.

To learn more about endowment plans, visit here.

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