Did you know that your life insurance plan can generate future savings? Check out endowment plans

Can your life insurance policy be an outlet for building future savings? Chances are, probably yes, if you opt for an endowment plan. Unfortunately, most people make the mistake of perceiving life insurance policies only as a means of getting life coverage. But the fact is that the right kind of plan can ensure higher safety for your family's financial future while helping you build some savings for meeting your goals simultaneously. 

Endowment Plans - How and why they matter

An endowment plan is a type of life insurance policy that combines the benefits of life insurance and savings. One can accumulate a future corpus over the long haul with these investments. You may use an online life insurance calculator to estimate these figures. This amount will be paid as a lump sum benefit when the policy matures or as a recurring income stream. Those starting early can build up a handsome amount even before they retire. 

Many individuals opt for endowment plans to build their retirement corpus, while some have other goals, like buying a home or covering their children's higher education or wedding costs. These plans inculcate a habit of savings while integrating financial discipline into your life. The other advantage is that in case of the policyholder's demise, a death benefit is also paid out to their nominee. 

As mentioned, you can either opt for endowment plans with lump sum payouts at maturity or regular income options. You can also include additional insurance riders in your policy, like accidental death or disability, critical illness, and more. Furthermore, each endowment policy comes with a 15 or 30-day free look period. You can cancel your policy purchase within this duration if the terms and conditions are not to your liking. Additionally, the premiums you pay for these policies will be eligible for tax deductions as per Section 80(80C) and 10(10D) of the Income Tax Act of 1961. As per the former, the premiums paid towards the policy (up to ₹1.5 lacs), and as per the latter, the maturity/death benefits paid out to the policyholder/nominee(s) are tax-free. 

Types of Endowment Plans and their Features

Here's taking a look at various kinds of endowment plans and their key features: 

1. Participating Endowment Policies - These help policyholders build their future corpus over a sustained duration. These plans offer a sum assured, which is paid out at the time of maturity or in case of the policyholder's unfortunate demise within the policy period. The cumulative bonuses, if applicable, are added to the mix, and the maturity benefits often surpass the sum assured amount. Hence, these plans may help cover future goals like retirement or children's higher education. 

2. Non-Profit Endowment Policies - These plans do not provide any extra bonuses or profits over and above the sum assured. There is a lump sum payout that is guaranteed as per the terms and conditions of the policy. This amount is paid out upon maturity, while the death benefit is paid to the policyholder's nominee(s) in case of their demise within the policy duration. 

3. Unit-Linked Endowment Policies - These are policies for fixed tenures where the premiums are invested in various market-linked instruments. These policies also ensure life coverage for the policyholder. The returns are based on the performance of the funds in the market and other factors. 

Why you need these plans

This kind of life insurance policy is beneficial if you want a plan that ensures life coverage and future wealth creation. They are great options for building a significant corpus for taking care of retirement goals or educational costs, among other needs in the future. At the same time, there is an assured death benefit paid out to the policyholder's nominees as well. Traditional endowment policies help you periodically invest in a disciplined manner while reaping the benefits of additional bonuses or profits (if they are included in the plan) as well. 

As mentioned, these plans are suitable for those looking to sponsor their children's higher education in the future or for building up a comfortable retirement corpus while considering inflation. The best part is that these plans are more suitable for those with low or moderate risk tolerance levels. Hence, one can build up future savings and gain life coverage without taking undue risks in the bargain. This is what makes endowment plans immensely popular amongst a large section of policyholders in the market.

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