With an shifting trend from ULIP plans to Traditional plans, All the life insurance companies are focusing more on the endowment plan category. Maximum all the companies selling life insurance products in India are having endowment plan with them. Before going into the topic, you should know the meaning and types of endowment plans available.
ENDOWMENT PLAN- MEANING:
Endowment plan is a combination of insurance and investment plans. This clearly indicates that endowment plan gives both risk coverage and investment benefit. Since this is a double benefit available to the customer, the premium payable is also bit higher when compared to normal term plans. This is because the premium part includes the investment part also. An Endowment plan provides benefit to the client in both the scenario where if the client dies the clients nominee gets the benefit from this plan. And If the client survives till maturity he receives the Maturity benefit.
Why Endowment plans are costlier?
In the above para we saw that an endowment plan is a combination of both investment and insurance. Hence 2 benefits are provided, the company has to collect 2 premiums- One for the risk coverage and the another one to investment.
Example: Premium is Rs 100000 and the sum assured is 1000000 in a Endowment plan. Here in this example, Risk coverage of Rs 1000000 is given to the client. For an endowment plan to work out, the company deducts mortality charge for the coverage paid. And the balance is invested in some guaranteed Government investments.
Will Endowment plan gives me profit?
Yes.Each and every endowment plan in the market provides you with profit. But the question is how much profit does it give. So when you are thinking of buying an endowment plan just calculate what is the net return the plan gives you.
How much return does a Endowment plan gives you?
More than 500 polices are sold by the 24 life insurance companies in India. More than 200 endowment plans are sold by these companies. Each plan has its own unique features and benefits. You have to be very cautious before selecting a endowment plan. Out of these dozens of plans, we had made a small analysis where we had found out that these plans had given net returns ranging from 3% to a maximum of 7%. No traditional is giving returns more than 7%. These returns given by endowment plans are very less when compared to the other savings options.
Less return. Should you buy ?
The return from endowment plans is very less compared to other savings options. But still you have to consider the life coverage available in the endowment plan. These plans normally works well in our absence. The main talk point here is the benefit payable to your family and the tax benefits available if you save in these plans. If a plan gives more than 20 times life coverage and a return ranging between 5% to 7% you can choose the plan without any second thought. But if it gives less than 5% and a lesser life cover you can avoid taking these plans.
Participating or non participating endowment plan- Which endowment plan to buy?
In the past, more are less both of these types of endowment plan has given a return of the same range. So if you get a traditional plan with more than 5% net return you can go for it. You can choose Participating endowment plan if they provide more sum assured because higher the sum assured higher is the chance of getting higher bonus.
This is a personal post from the author. And all these points discussed are the views by the author and this post doesn't support of any plans or guarantee any returns of any plans.