The time period is typically set between 5 to 20 years, after which, the policy holder can avail of the matured amount. In the event of the policy holder's death, his or her nominee gets the amount. A regular term life insurance plan benefits only the policy holder's nominee(s) after his/her demise.

What are the advantages of Endowment Plans?

These plans are criticized for being more expensive insurance investments because of the high premiums as compared to other plans but if you choose wisely then you can benefit greatly in the long run.

Two in one benefit

When you purchase an endowment policy, you get life insurance as well as a savings scheme. At the very beginning you will be assured of receiving a certain sum once the policy matures, after a time period that has been set by you. The premium that you pay over the years will be further invested into various schemes and bonus amounts from these will be added to your credit, resulting in quite a large sum once that time period is over. In case of the death of the policy holder before the policy matures, the nominee receives the amount.

Tax benefit

Arguably the best thing about buying an endowment policy is that the matured amount is a tax free, lump sum amount. This is also an investment which is tax free - premium amounts of 1 lakh or less are not taxable. Also, according to the Income Tax Act, the amount received in the event of the death of the policy holder is also completely free of tax.

Significant savings

Many people buy endowment policies as a savings plan for some later event in life, either to fund their children's further studies, marriage or their own retirement. This is a valuable policy therefore for retirement purposes as policy holders get a substantial amount of money to sustain them in their old age. Also, since the monetary returns of such plans are on the higher side, policy holders are able to get loans against the surety of their endowment policies.

While these points might make endowment policies seem like the best option, as always before buying insurance, read between the lines carefully and weigh the pros and cons. A regular life insurance plan has a lower premium than an endowment policy. Should you decide to terminate the endowment plan, the amount you will receive will be less than the premiums you paid. The returns of such a policy, though tax free, are also less than what you would get if you invested in a long term investment plan such as a PPF scheme.

Written By: Deepak Yohannan
The author is the CEO of MyInsuranceClub.com, an online insurance price & features comparison portal

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