An endowment insurance is a type of policy that combines life coverage and savings. It offers fixed, guaranteed returns paid out after a set period, along with a death benefit to safeguard your loved ones.
With its design, this policy can help empower your future by building a solid savings plan while also providing valuable protection against life's unexpected events.
Here’s an in-depth look into endowment insurance policies and how you can incorporate it into your personal financial planning.
Key Takeaways
- Endowment insurance offers both life insurance coverage and a savings component, ideal for those who want to build additional savings while financially protecting their loved ones.
- Endowment plans offer options on life coverage needs and payment modes.
- If you are looking to build structured savings for specific financial goals and prefer low-risk insurance plans with guaranteed returns, an endowment plan is ideal for you.
- To choose the best endowment insurance, consider your financial goals and capability. Don’t forget to compare endowment plans and find a reputable insurer.
How does endowment insurance work?
When you get an endowment insurance plan, you can confidently save for the future you envision with certainty and precision, supported by the guaranteed cash benefits it provides.
Let's say you're planning to enroll your child in sports to give him/her a competitive future. You can access the funds you need through the guaranteed payouts of the plan, which are provided on a pre-determined date.
These guaranteed payouts can be given on a regular or one-time basis and are not affected by market performance. Additionally, you will receive a lump sum payment--known as the endowment--upon the plan's maturity.
Additionally, an endowment plan offers life insurance coverage to protect your loved ones in case you unfortunately pass away before your plan's term ends.
You also have the flexibility to choose how you pay your premiums--whether monthly, quarterly, semi-annually or annually, based on what best fits your financial situation. Insurance providers may also allow you to make a one-time premium payment or limit your payments to a specified number of years, which could be shorter than the policy term.
Some endowment plans also offer regular payouts prior to the end of the set terms.
Tip: If you’re aiming to build structured savings faster, you can get an endowment insurance plan with shorter terms. This will likely require you to pay higher premiums, but you can get your payouts sooner, too!
What makes it different from other insurance products?
With myriads of insurance products available today, it can get pretty confusing. So, here’s a quick comparison of how endowment plans differ from some of the most common life insurance products:
Endowment Insurance vs Term Life insurance
Term life insurance is the simplest form of insurance. You pay premiums for a specified term, which often ranges from 10 to 30 years, and during that term, your beneficiaries will receive a death benefit in case you pass away. Should you live on beyond the terms you set, you will not receive any payout.
Endowment insurance also provides life coverage. What makes it different from a term life insurance is that it gives the insured annual payouts during the policy term and a guaranteed lump sum at the end of the it.
Endowment Insurance vs Variable Universal Life Insurance (VUL)
Variable Universal Life (VUL) insurance is among the most known types of insurance that offers life coverage as well as investment opportunities.
While both plans offer life protection, a VUL plan also includes an account value that grows based on the performance of the funds in which the premiums are invested. These returns are not guaranteed and depend on market conditions. VUL premiums are often more flexible and less expensive, but they require longer-term commitment.
Key benefits of endowment insurance
Adding an endowment insurance plan to your portfolio can yield a range of benefits. Here are some guaranteed benefits of endowment insurance:
Dual benefit of savings and protection
If you're torn between getting an insurance plan or building your savings, an endowment plan lets you have the best of both worlds. With an endowment plan, you get financial protection along with guaranteed payouts to help achieve your life goals.
Guaranteed maturity benefit
An endowment plan offers guaranteed maturity benefit at the end of your policy term. This provides you with certainty on your investment and allows you take out your investment and income earlier. You don’t need to wonder where it went or when you can withdraw or pull it out.
Financial discipline
Given its structure, endowment plans can help encourage regular and structured savings. These plans require fixed premiums, so you can set a definite amount regularly, knowing you can reap what you sow in a span of defined time as well.
Loss Prevention
Compared to other unit-linked insurance or equities, endowment insurance is relatively low risk. It also does not require frequent monitoring of market conditions, and to some extent, shields you from market volatility.
Is endowment insurance the right plan for you?
Like other investment tools, endowment plans come with risks too. This is considered lower compared to other investment vehicles.
Here’s how you can know if an endowment plan is right for you and your financial plans:
Who is it ideal for?
Endowment plans offer a low-risk way to grow your money. They are ideal for those seeking a mix of savings and life insurance protection, and who aim to build funds for mid-term to long-term financial goals. These may include travelling, improving their lifestyle, supporting their children’s hobbies.
Endowment insurance plans are ideal for you if:
- You’re saving for a specific goal and timeline in mind
- You want to build structured savings and grow your money in a safe manner
- You prefer a low-risk and predictable investment option
When may it not be the best fit
If you are looking for major investments or planning your retirement, endowment plans can be a supplementary tool, but not a primary investment vehicle.
Endowment insurance plans may not also be the best option if you aim to grow your money fast or you are looking for investment options with high returns.
Additionally, it is important to consider your goals, age, risk appetite and income, as well as the insurance policies’ premium affordability, when you’re looking for a plan.
If you’re still unsure, it is also ideal to get advice from your trusted licensed financial advisors.
How to choose the best endowment insurance plan
- Assess your financial goals and time horizon
What do you aim to achieve with an endowment policy and when do you want to achieve it? List your short-term and long-term financial goals and set your priorities. This will help you better prepare for your future and live in the now. - Compare premiums and coverage
Prior to buying any insurance products or investing in anything, evaluate premium payments, coverage, and policy tenure. Make sure it fits your needs and goals. Take time to compare it with other products and plans available in the market. - Look at the insurer’s reputation
Endowment plans are designed to provide guaranteed payouts. Ensure you invest with a credible insurer who can deliver the benefits you signed up for. Choose a reputable and financially stable insurance provider. - Review the payout structure
For endowment plans, and even for other insurance products you want to buy, it is important to know the payment structure as well as the claims processes. Ensure you understand when and how payouts are made.
Boost your financial goals with an endowment insurance plan
Endowment insurance plans can support your financial goals. With its guaranteed cash benefits and life insurance coverage, you can be more empowered to build a secure future for yourself and your loved ones.
Get personalized advice on endowment insurance and your personal financial goals. Download the AXA Secure Future brochure or talk to an AXA advisor today!
