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Should You Invest or Buy Endowment Plans of LIC?

Vibhu Singh1315 29-Aug-2018

Insurance companies have on offer an array of plans and policies that are suitable for policyholders. Life Insurance Corporation, popularly referred to as LIC, is known for its LIC endowment plans, a form of life insurance and investment plan.

While other private insurance companies focus on other forms of insurance policies, but most of the policies offered by LIC are premium endowment plans. Here are a few things that need to be considered while investing or buying an LIC endowment plan.

What is an Endowment Policy?
The question that needs to be addressed is what is meant by LIC endowment plan. Simply put, an endowment policy is combination of both investment and insurance, quite like ULIPs (Unit Linked Insurance Plans). However, endowment plans offer guaranteed returns, whereas ULIPs offer return depending upon the market.

The policy-holder’s life is insured for a pre-agreed time frame and is the coverage is referred to as sum assured. A premium is paid by the policy-holder out of which a part of it is used to cover expenses of the company while the rest of the amount is invested in the policy-holder’s account.

There are two types of premium endowment plans: with or without profit. There are several options that policy-holders can select from like life pension, education of children, or a retirement plan.

What are the Key Features of the LIC Endowment Plan?

The USP of LIC’s new endowment plan is that it serves a dual purpose of insuring the policy-holder’s life and investment at the same time. This combination is helpful in case of the policy-holder’s death as the family will be entitled to a lump sum amount when the policy matures.
One of the major concerns that family members of a deceased policy-holder have is a cash flow problem. However, this endowment and investment plan provides a loan facility to take care of this issue.
The endowment plans help salaried individuals save in a systematic manner and ensures financial security. Also, LIC endowment plan is an excellent option for those who do not like taking risks as this is a safe plan to opt for.

You may also like to read: Best term insurance plans in India 2018

What are the Advantages Offered by Endowment Plans?

Some of the main advantages of investing in endowment plans include:
•    Long-term investment
•    Risk free and safe option
•    Systematic savings
•    Assured bonuses
•    Premium flexibility
•    Double tax benefit

Another advantage is that riders can be added to the policy like disability and accident benefit. Under this rider, an add-on benefit is added to the policy that will insure the policy-holder in the event of accidental death due to accident.

In case the policy-holder becomes disabled, as part of the rider, a payout plan will be executed based on agreed upon terms. Note that these riders are eligible for discounts based on a higher amount of premium of the policy purchased.

What are the Benefits offered Under LIC Endowment Plan?
The various benefits extended under the premium endowment and investment options offered by LIC include:
•    Death benefit
•    Maturity benefit
•    Participation of profits

In the event of the death of the policy-holder, during the policy period provided all premiums are paid, then death benefit is payable. However, it must be noted that the benefit should not be less than 105% of the premiums paid.

The basic sum with revisionary bonuses and additional bonuses, if applicable, along with a lump sum amount will be paid to the policy-holder at the time of maturity. However, these payments will be made if all the premiums have been paid.

Bonuses can be declared for a policy when the results of policy claim are established either due to maturity or death of the policy-holder. However, this is subject to the clause that the policy must complete a minimum term as stated in the policy document signed and approved by both the insurer and the policy-holder.
Are Any Tax Benefits Available by Investing in Premium Endowment Policy?

Yes, policy-holders investing in endowment plans receive tax benefits. Policy-holders can claim benefit from section 80 C on the premium paid and under section 10 D in lieu of death benefit.

The dual incentive in the form of tax relief encourages people to invest in long term plans that are beneficial to policy holders.

What Factors that Need to be Considered While Selecting LIC Endowment Plan?

While selecting an endowment plan, one should consider the policy-holder’s current life stage, income, investments, long-term financial goals, number of dependents, and individual needs. Also, the premium rates offered by insurer, bonus payment track record, reputation, financial standing, claim and settlement ratio, and financial standing need to be taken into consideration.

Select a plan that is easy to understand, simple, and terms that one is comfortable with. Avoid selecting a complex policy and read the insurance document carefully before signing on the dotted line.

Updated 29-Aug-2018

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