There are several financial instruments available these days that allow you to build a strong portfolio over the long haul and enable you to accomplish your goals. You will often find two sets of products, ones that are high-risk and offer a high reward. While others are low-risk but provide fixed rewards. Smart investors invest in both, as they know not to put all their eggs in one basket. Having a diversified portfolio allows you to maximise your gains while attaining financial stability.
An endowment plan is one such product that people buy, as it easily contributes toward one’s financial stability, along with securing their future. It is an essential plan which is helpful for the policyholder and their family. It ensures that the policyholder’s wealth is multiplied while their loved ones are protected in times of uncertainty. Before buying an endowment plan, it is important to understand its meaning and what happens when the plan matures.
Understanding an endowment plan
An endowment plan is a financial instrument that offers dual benefits. When you buy an endowment plan, similar to any other life insurance product, you are required to pay premiums. You can use a life insurance calculator to get an estimate of the sum coverage you require to protect your loved ones. Life insurance ensures that in case of your sudden demise during the tenure of the plan, your loved ones will receive a sum assured. This ensures that in your absence, your loved ones have financial cover to rely on. Ensure that when you choose the coverage amount, you take into consideration the needs of your dependents along with any liabilities that you may have. You want to ensure that in your absence, your loved ones do not face any financial turmoil.
Along with life insurance, an endowment policy is also a savings product. The insurance company provides returns on a part of the premiums you pay towards the plan. These returns accumulate over the years and are provided to the policyholder when the plan matures. This ensures that the policyholder has sufficient funds to fulfil their goals. It is a completely risk-free saving instrument that offers guaranteed returns. Once you understand how an endowment plan works, it is important to understand what to do when the plan matures.
Maturity of an endowment plan and its benefits
All endowment plans are created for certain tenure. When you buy one, your papers will mention the period of the plan. When your endowment policy reaches the end of its tenure, it is said to have matured. If during the duration of the policy, the policyholder loses their life; they receive the death benefit from the insurance company. If the policyholder survives the policy, they receive a payout from the company when the policy matures.
Maturity benefits
A policyholder only receives the maturity benefits when the tenure of the policy has ended. It comprises the sum assured along with the simple reversionary bonus and any final bonuses that the policyholder may have received. The payout is given by the insurance company in a lump sum and is only done after the tenure of the policy has ended. For a policyholder to receive the payout, it is compulsory that they pay all the premiums throughout the plan.
Death Benefit
Since endowment plans are a type of life insurance, they pay out a death benefit, provided that the demise of the policyholder was during the tenure of the endowment policy. The nominee mentioned in the policy receives the death benefit. It is a fixed amount comprising the sum assured, reversionary bonus, and any other bonuses that apply. The total death benefit cannot be less than 105% of the total premiums paid by the policyholder before their demise.
Rider Benefits
When you are buying an endowment plan, you can choose riders, which are like add-on benefits to your base plan. Pay an additional premium for the additional benefits that you receive. You can use a life insurance calculator to get an estimate of the add-on premiums that you have to pay.
When you buy an endowment plan, ensure that you choose the premiums that you can easily pay throughout your policy. The maturity benefits of the plan allow you to fulfil your long-term goals.
