Advantages of Endowment Plans for Your Retirement

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Advantages of Endowment Plans for Your Retirement

life insurance policy that combines the elements of savings and insurance is called an endowment plan. Endowment plans provide the benefit of a life risk cover, which offers financial stability for your family or loved ones in the unfortunate event of your untimely demise. Additionally, they also require you to start saving (investing) money on a regular basis for future financial needs. You can steadily increase your wealth by saving a portion of your income as the premium for the plan. These policies are typically meant for the long term, and the longer the policy lasts, the bigger the payout at maturity. 

Since it offers both safety and growth, an endowment plan is one of the best options for your retirement. It functions as an investment and a form of insurance. Endowment plans are safe investments that can help diversify your portfolio. Let us look at how they can be worthy additions to your retirement portfolio.

Why Should You Include an Endowment Plan in Your Retirement Portfolio?

The following are a few reasons for having endowment plans to help you prepare for retirement.

●     Emphasizes The Need For Savings

Endowment plans are popularly used to build up a savings corpus. Regularly deposited premiums encourage long-term savings. This characteristic sets it apart as a good retirement planning option. The money you have saved will be helpful to you when you retire. 

●     Maturity Benefits

These policies pay out the amount promised to the life insured at policy maturity if the policyholder outlives the policy term to provide financial security in retirement. The policyholder is assured of guaranteed returns, making these benefits lucrative for risk-averse individuals.

●     Assured Bonuses

Endowment plans sometimes provide an annual bonus generally distributed as a percentage of the amount assured. Additional bonuses accumulated throughout the policy period are paid in addition to the promised amount if the policyholder survives the policy term. The death benefit, which includes the entire sum assured and the cumulative bonus, is paid out to the nominee(s) in the event of the policyholder’s death within the policy term. These bonuses can add to the corpus that you end up relying on during your retirement years. 

●     Long-Term Tax Savings

If you invest in an Endowment Plan, then throughout the premium paying tenure, you will have the added advantage of tax savings due to exemptions offered under Section 80C (exemption on premiums paid up to ₹1.5 lacs) of the Income Tax Act of 1961. Additionally, the sum assured and the maturity benefits are tax-free under section 10D of the act. 

Tips to Help You Select the right Endowment Plan for Retirement:

●     Start planning early: The earlier you start investing, the better, as it gives you a long time to watch your money grow. As a result, the insured can accumulate funds and practice disciplined savings. The resultant corpus will be able to support you through your retirement comfortably. 

●     Choose a plan with riders: Riders enhance the scope of your plan and make it more comprehensive in nature. As most insurance companies offer riders, one should not skip on the opportunity to add them. In addition to the goal of retirement planning, a comprehensive plan can be beneficial in the form of education endowment, double endowment, or marriage endowment policies.

●     Examine the premium payment flexibility: Endowment plan insurers offer flexible options; for example, a salaried person can choose regular payment options for endowment insurance, but a person with variable income can choose a single or restricted premium payment option.

●     Guaranteed and Non-Guaranteed Returns: Many of these policies also offer guaranteed or non-guaranteed returns in addition to the insurance. These returns are paid at either the policyholder’s death during the policy term or policy maturation (as applicable). Certain bonuses are variable in nature and depend on the performance of the investments included in the non-guaranteed returns. The selection of either of these types of returns depends on the risk appetite of the policyholder. 

●     Select a suitable sum assured and policy tenure: This is the most crucial aspect of the endowment plan you choose, as you need a policy that pays out at the time of your retirement and sufficient life cover in case you meet an untimely demise. So you must choose the timing and the coverage after careful deliberation. 

Conclusion

With a corpus from an Endowment Plan, you can enjoy your well-earned retirement in financial safety and comfort when your primary source of income is gone. An endowment plan is one of the best options if you want the dual benefits of insurance and savings in one product. If you are starting your retirement planning, check out the many endowment plans available in the market and choose a suitable one for your needs. 


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