What are the Types of Endowment Plans?
As an earning individual, you will look for ways to increase your wealth. The concept of increasing your wealth is known as wealth accumulation. In this concept, you invest your wealth in different assets that increase your investment with lucrative returns. There are many financial instruments in the market that provide long-term and short-term investment benefits; however, the returns might not be necessarily fulfilling as per your goals.
One instrument that you should consider for investments is an endowment plan. There are different types of endowment plans that offer different benefits. Which plan would suit your goals? Read more to understand the differences between each plan.
What is an endowment plan?
This plan is a type of life insurance policy. In this policy, you get the dual benefits of insurance and investment. The investment allows you to grow your wealth so that you are able to fulfil your goals. The maturity benefits that you receive will help you living a life with financial independence.
The insurance part provides financial coverage to your loved ones from life risks in your absence. Your loved ones will receive a death benefit to take care of the necessary expense. Once the policy matures, they would receive the maturity benefits as well. If you survive the term, you receive the benefits. If you pass away during the term, your family will receive the benefits.
What are the different types of plans?
There are different types of plans when it comes to endowment. These plans are:
- Unit-linked endowment
In this plan, the term is fixed. For example, if you invest in a plan with a term of 20 years, the term of the plan will not change. In this plan, you can invest in a fund that is of your liking. The premium that you pay towards the plan is bifurcated into two parts. One part is used for investment in the fund. The other part is used for the insurance cover. The investment is done into different units of the fund. As the fund is market-linked, it has a high-risk factor. However, the returns are also higher. This type of plan is more suitable for people who have a higher risk appetite and who wish to gain greater returns on their investment.
- Full endowment
In this plan, the sum assured you receive once your plan matures will be equal to the death benefit the plan would pay in the event of the insured’s untimely demise. This means, if you survive the term of your policy, your insurer will offer you maturity benefits that matches the amount that your family would have received after your passing away. If there are additional bonuses accumulated in the plan, they would also be added to the sum assured.
- Low-cost endowment
In this type of plan, the payment that you would receive once the plan matures is deferred and are received either by the insured or their beneficiaries. The main target audience of this plan is those who are in the process of repaying loans or debts. If the policyholder were to pass away suddenly during the term of the policy, the insurer will pay a minimum sum assured to the beneficiary to cover the repayment.
- Guaranteed endowment
In this plan, either you or your family will receive guaranteed benefits. If you survive the policy term, your insurer will pay the sum assured as per the face value of the policy. This amount will be paid when the policy matures. On the other hand, if you were to pass away during the policy term, your family would receive the sum assured in the form of a death benefit. Bonuses, if any, might or might not get added to the pay-out.
These are the type of endowment plans that you can consider investing in. Use the life insurance calculator before you decide upon a plan. The calculator will help you in getting an idea as to how much you should invest in, and which plan will be suitable for you.