In the initial years of life, people often focus on aggressive wealth creation through investments. However, with age, this focus may shift to capital preservation, especially after the age of 50. When approaching retirement, people often pay heed to guaranteed returns, savings for a financially secure retirement life, and more. In this context, endowment plans can be a secure option. It not only provides you with mental peace against the uncertainties of life but also ensures a guaranteed payout.
This guide is all about how you can make your future financially secure, especially after 50. We will discuss the role of endowment plans as a meaningful policy that helps with safe returns after 50.
What are Endowment Plans?
Endowment plans are primarily a type of life insurance policy. However, along with the life insurance coverage, endowment plans also let you save funds. The funds that you save are eventually paid out upon maturity of the policy if the life assured survives the policy tenure.
So, this is the dual benefit of endowment plans, where you get to save funds and secure your life under a single policy.
How does an Endowment Plan work?
To purchase endowment plans, you need to pay the premium amount to the life insurance company. A part of this endowment plan premium is used to provide life insurance coverage, and the remaining amount is kept as savings.
In case the life assured (who may also be the policyholder) dies during the policy tenure, the nominee receives the full sum assured amount as death benefit. However, if the life assured survives the policy tenure, the policyholder (who may also be the life assured) receives the lump-sum payout as a maturity benefit. This maturity benefit is not available in pure life insurance plans like term insurance.
Why Endowment Plans for Safe Returns?
Endowment plans offer tax benefits, guaranteed returns, and disciplined savings. But are these an ideal choice for someone in their 50s? That’s an important question.
An ideal fit for endowment plans could be people who are:
- Risk Averse
Not everyone wants high returns, but some prefer guaranteed returns over them. Endowment plans offer the same. Unlike ULIPs (Unit-linked Insurance Plans), endowment plans do not invest in market-linked funds. These are rather savings plans that are paid out upon maturity.
So, both risks and rewards of market-linked funds are almost absent in endowment plans. Hence, people who are risk-averse but want safe returns can go for endowment plans.
- Approaching Retirement
People who are approaching retirement may want to purchase policies that ensure stable returns for a financially sound retirement. Endowment plans, as discussed above, are almost free from market risks. So those who want guaranteed and stable returns during their retirement years may find endowment plans quite meaningful.
Note: To receive the maturity amount upon retirement, it is important to plan the policy tenure accordingly so that the policy matures when you are approaching retirement.
- Planning Financial Portfolio
Individuals who are planning a financial portfolio may want certain risk-free options as well. This is when an endowment policy can be useful. If you are building a financial portfolio, including market-linked investments, life insurance, and risk-free choices, make a balanced portfolio.
An endowment policy can be a choice since it offers both life insurance and guaranteed returns under one premium.
- Looking for Life Insurance
In today’s time, the uncertainties of life and increasing awareness have made life insurance an essential part of financial planning. As endowment policies are basically life insurance plans, they fulfil this purpose as well.
Endowment policies also offer tax benefits. Under Section 80C of the Income Tax Act of 1961, you can avail tax deductions of up to ₹1.5 lakhs, and Section 10(10D) of the Income Tax Act of 1961 makes the death benefit tax-free.
End Words
Endowment plans let you build strong savings with low risk involved. This reliable way of saving is highly meaningful for people approaching their 60s and retirement. On the one hand, the plan offers guaranteed maturity benefits, which give you the flexibility of future financial planning. On the other hand is the life insurance coverage that ensures your family is financially stable even in your absence!