Many people especially young working generation prefers to purchase an insurance cum investment plan, and ‘endowment policies‘ become the best solution for these people. These insurance types where the premium amount paid to the insurance company is partly used for protecting policyholder’s life and remaining part used for the purpose of investment to support you building a corpus at the stage of retirement.
In simple words, endowment policies provide triple benefit of investment, insurance & tax savings. It is a structured product which is a combination of investment & insurance.
It may declare bonus annually and is usually mentioned as a percentage of total sum assured. This bonus declared is paid out of the returns made by the endowment insurance over a time period. Normally, the percentage of bonus paid is depend on a plan and the respective insurance company.
If the demise of policy owner occurs during the valid term of policy, then his/her dependents will get the sum assured. In case, insured person survives till the maturity date, then policyholder will be eligible to get the sum assured plus the accumulated bonus till the maturity date. The maturity period varies from company to company.
The demand of endowment policy in India is increasing day by day. It is necessary for you to know that bonus may not declare after every year. Many companies prefer to accumulate annual bonus and paying it on the maturity date rather than giving it every year.
The bonus when paid under this product is not annually compounded that affects the returns in the long run. It is the best option for young people who cannot save more money as they may have some other priorities.
These products have always been around but as they are long term, so they are considered as an insurance, more than savings. Due to its flexibility, it meets the two goals of wealth accumulation & protection at the same time. This plan do not contain interest rate risk and investment risk.
Unlike many insurance schemes, customer don’t need to submit a medical report to qualify for this plan. As compared term insurance, it is quite expensive but still this product is worth it. But, buyer won’t get all the benefits if he/she don’t pay their full premium amount, and if policyholder stop paying his/her premiums, then automatically the insurance will lapse.