An endowment plan is a financial product that merges two benefits into one. When you buy an endowment plan, you receive life insurance coverage along with the benefit of a savings plan. Both these aspects are vital components to consider when you are planning out your present and future finances. A life insurance policy is especially significant if you have financial dependents. Due to an unfortunate circumstance, if you were to pass away, the life insurance policy can act as an effective financial shield against any monetary woes. The savings component of the policy can assist you with financial resources in your future so that you meet your goals effectively.
To make the most of an endowment plan, you should choose the right duration for it. There are several factors that go into the process. We list out the important ones for your benefit.
Factors to consider when deciding the endowment insurance duration
- Your current age
The age of the policyholder plays a key role in any insurance policy. It not only affects the premium but also gives you a point of reference to plan your future finances. People buying an endowment plan at a relatively early stage can opt for a longer duration, as they have a larger gap to fill. It is also beneficial because they can start with small premiums. If you are buying an endowment plan at a later stage, for instance, in your late 40s or 50s, it is ideal to opt for a short tenure.
- The age of your dependents
This factor is important as it determines how long your loved ones are likely to be dependent on you. If the primary beneficiaries of your policy are your children, then you should choose a tenure that is close to the period when they would get financially independent. You can also choose a tenure that takes their life stages into consideration. A life insurance calculator can be very helpful in this regard.
For instance, if you want to create a huge fund for your son’s marriage, and are buying an endowment plan for the same, then you should consider your son’s present age. If they are 15 years old currently, you can take a duration of around 12-15 years for the plan to mature. The calculator will give you an estimate accordingly.
- Your income and how long you will receive it regularly
To continue the coverage and savings aspect of your endowment plan, it is essential to pay the premium on time. And for that purpose, you must have a regular source of income from which you can draw out the premium without affecting other parts of your monthly budget. If you are finding it difficult to pay the premiums of your endowment life insurance policy from your income, then you should opt for a longer tenure. This allows you to pay small amounts at the frequency of your choice. This way, you reach your goal figure by the time of maturity without interfering with your regular expenses.
Another factor to keep in mind is the number of years you will be receiving a regular income. Paying premiums for a policy once your income has stopped can be quite cumbersome for your finances. If you plan to retire early, then opt for a shorter duration and choose to pay higher amounts at more frequent intervals. A life insurance calculator is a great tool to use when you are trying to reach the right balance between tenure, risk cover, and the premium.
Benefits of endowment plans
If planned effectively, these are the benefits you can enjoy with your endowment plan:
- Life cover + savings – Rather than buy two separate products for life coverage and savings, you can opt for hassle-free life insurance and savings under a single endowment plan.
- Optional bonus additions
You can receive bonuses that are added to your life cover under participating endowment plans. These bonuses are related to the profits of the insurance company.
- Guaranteed income
Since your money is parked in low-risk instruments, you do not have to worry about market risks or fluctuations. You receive guaranteed income at the time of maturity.
Buying an endowment insurance plan is a smart way to assure that you and your loved ones have a financial backup in times of emergency. We hope this article helps you make a well-informed decision about the same.