Endowment Plan

Ayan Chaterjee passed away last year who was 40 years old then. He was a successful software engineer. His wife Anita is the earning member now and she is 35 years old now. Their only daughter Radhika is 13 years old now. When he passed away suddenly, nobody has ever imagined that will be happen. No need to say it was a devastating situation as they didn’t have much investments. Things could have been gone worse but Ayan had an Endowment Life Insurance policy. The policy paid the sum assured along with the bonus. The emotional loss couldn’t be fixed but Anita used the policy money for investing which can be used for Radhika’s basic, higher education and marriage and secured their lives financially. Life is uncertain and we can do exactly nothing to stop it being so. What we can do, is insure our life while we can because that is going to help our families when we are no more with them.

In India both the public sector and private sector companies offer life insurance and some are even government sponsored. The range of products they are offering can be categorize under two major heads i.e. Term or pure insurance plans and plans with investment opportunities. Endowment plan is one of the plans which offers us some more than just the sum assured. Companies consider the facts like age and sex of the insured, lifestyle, amount of cover needed, tenure of the plan etc. while decide the premium. The premium they collect, a part of that used for insurance and the other part as investment.  It has a fixed term and pays both the sum assured and the bonus either on maturing the term or death of the policyholder whichever is earlier. When considering for an endowment plan one may need to do the assessment on both personal level and company wise. On personal level he may consider his annual expenses, age, lifestyle habits, amount of cover needed, amount which he can pay as premium. Amount of life cover needed is a tricky assessment and you may want to take some professional assistance from your financial planner. But here is a way i.e. you can assume the amount of ten to fifteen times of your annual income as life cover need. So, if someone is having annual income of eight lakhs then he may need eighty lakhs to one crore twenty lakhs as his life cover. When comes company wise you can always pick a company you trust but if you want to then can do some of the assessment on your own. You can consider the cheapest possible plan for a given amount of life cover, claim settlement ratio, availability of riders, types of investment option they are providing etc. Claim settlement ratio takes into account total claim a company is settling over total claim received from the policyholder within a year and a greater ratio is favorable. Let’s say if the ratio is 90% and total claim received that year is 100 then 10 claims are rejected and 90 claims are settled by the company.

All our life we plan for our finances as we have certain goals in our life. Not only that, when we become family person the goals of our loved ones also become included into our goals. Obviously these goals need to be fulfilled by accumulating our wealth. If any eventuality happens things can get jeopardized all of a sudden. An endowment life insurance plan can take care of both the needs while we are around and while we are no more. As an additional benefit it helps us to reduce our tax liability by claiming deduction. We can claim up to one lakh fifty thousand rupees as deduction on the premium paid and any amount of money received as exemption. We might want to refer to the below table for better understanding of the tax treatment.

We are in twenty first century world and usually talk about advancement of technology and betterment of our life. We are growing simultaneously with the world population and financially healthy than ever. Irrespective of all these things we are still below the mark when it comes to the financial security compared to the world. More than half of the population’s life is not insured. It’s the high time to look into these things more closely. Our life is a gift but it has its own term. When we share our life with our loved ones it becomes more beautiful but it also becomes our responsibility to protect them from the uncertainty of the life. They will always remember us more proudly and live their life with dignity if take the measures we need to. I remember my father insured my life as well as my mother’s and his when I was fifteen. It makes me feel relaxed and secure at the same time when it comes to the uncertainty of my life. That single measure made him a more responsible father than others.