Should You Buy An Endowment Plan? Will Endowment Policy Work For You? - YouTube

Here, we will discuss whether endowment policy will work for you

These are the most important things to keep in mind before buying endowment policy

Or endowment plans or life insurance endowment policy

Most people get to know about these things after they have bought endowment policies

They realise too late that this kind of life insurance policy is not right for them

This often means a lot of trouble for them

We discuss key features of endowment plans or endowment policies you must know before buying

People don't realise the implications of a combination of life insurance and investment

Which an endowment plan is

People also falter in knowing whether the life insurance coverage will be adequate

You need to ask is whether endowment policy can meet any financial goal

Most people focus on saving tax or check possible returns for premiums paid

People often overlook the utility of returns and how do they compare with alternatives

Endowment policy buyers are often oblivious of the costs of mistakenly buying it

People are often not able to see through sales pitches for endowment policies

Endowment policies are combinations of life insurance and investment

You can separate life insurance and investments with good results

Pure term plans without return of premium provide higher life insurance at lower premiums

There needs to be compelling logic of combining life insurance and investment

You need to understand the consequences of combining life insurance and investment

The "convenience" of combining life insurance and investment comes at a cost

In Unit Linked Insurance Plans (ULIPs) you get to know the costs

In endowment policies, you don't have the same disclosure of costs

Thus, by choosing an endowment policy you are choosing to buy a high-cost product with lower disclosures

In ULIPS, you take the call on where your money is invested i.e. which ULIP fund

In endowment plans, life insurance company is taking the investment decision

Of course, the risk is lower for an endowment policy but it comes at a cost

Proof of high charges of endowment policies lies in low surrender values in the early years

Check out the portion of the premium paid that you get back on surrender

After 3 years, you roughly get back a third of the premiums paid

The loss is due to the very formidable front-ended charges

It is argued that there is less uncertainty and risk in the endowment plan returns

Endowment policies have been delivering 4.5-5.5% tax-free returns

You get tax deduction for premium under Section 80C and tax-free maturity proceeds under Section 10(10)D

This return is inadequate in the backdrop of inflation of 7% p.a in the last 10 years

One argument to defend the return is that you also get life insurance coverage

You pay a much higher premium in endowment policy for the same life cover by a term plan

In endowment plans, chances are that returns and life insurance will be both inadequate

You get a range of bonuses in endowment policies depending on the plans

Bonus amount announced annually is not certain but they stay within a range

The price of less uncertainty is the lower returns in the form of bonuses

Public Provident Fund also provides tax-free returns and can be a competing investment

You can combine it with a term plan

You can get simple bonus, compound bonus, terminal bonus and cash bonus

These are there in with-profit policies where investment profits are shared

In without-profit, you get some kind of guaranteed addition in relation to life insurance amount

You get this in the end and in with-profit policy you can get an interim bonus

You get it in the year of death or maturity

Cash bonus can be announced where you don't wait till the end of the term to get it

Despite the bonuses, the returns remain low

Surrender conditions are difficult and you recover premiums only around 8-10 years

A lot of the marketing push for endowment policies are due to the high remuneration of distributors

They can get commissions of 35% upwards of first premium and 5% for subsequent years