An Endowment Plan is designed to provide a lump sum amount after certain specified term or death of a person. The insured gets the sum as...
An Endowment Plan is designed to provide a lump sum amount after certain specified term or death of a person. The insured gets the sum assured along with bonus and guaranteed additions that accrues during the term.
Endowment Plan Meaning
Endowment plan is a type of life insurance coverage which is applicable only for specified period. Like any other Life Insurance, here also you will get assured sum after maturity and in case of death of the policy holder the nominee will be benefited by the amount. In this plan the specified period will be ten, fifteen, twenty years or up to certain age limit for which you have agreed.
Endowment Plan= Insurance + Savings
Types
Types of Endowment policies popular in the market are as follows :
1. Unit-linked Endowment
This is a fixed term saving plan with an opportunity of life coverage. In this plan your savings can be invested in market shares thus the return you get from this completely depends upon on the performance of your investment. If you are ready to play with the market risks then this is the best option.
2. Full Endowments
In Full Endowment plan at the start of policy you will be assured with basic sumwhich is also equal to death benefit. However the amount you get at the end of maturity depends on the annual growth rate. Actually your premium amount will be pooled into company’s or some other investment and each year a bonus is added into your credit. Thus final amount paid to you will be usually higher than the assured fund.
3. Low Cost Endowment
In this endowment plan the anticipated future growth rate of the amount will meet the target amount and the guaranteed life insurance element. In case of death, this target amount will be paid as the minimum assured sum. Usually Low Cost Endowment plan is used to pay off a mortgage and this is the major advantage of this policy. However investor may increase the premium amount to collect the enough money to clear their mortgage.
4. Unitised with Profit Endowment
This is a form of profit endowment where the value of units is calculated annually and this value is guaranteed in order to form a minimum return amount. This guaranteed sum remains unaffected from the market risks thus giving you relief. However the guaranteed amount is less than the actual value but if you want to escape from the volatility of market this is a safe investment.
5. Non Profit Endowmen.
As the name suggests this plan does not add any bonus for the amount you pay as no sum is invested in shares. If you are looking for a policy to pay off your mortgage then this will not help you but,if you need only life coverage then you can opt for it.
Endowment Plan Is Ideal for you
a. If you are looking for a plan with the dual benefit of investment and insurance.
b. If you are looking for a long term investment and want to receive a lump sum amount at the end of some years or maturity.
c. If you like to pay your premium in short period and want to enjoy the benefits from the plan over the policy term.
d. If you are looking for an investment which is tax free then this is good option. As per section 80C of Income Tax Act you can enjoy tax benefit on the annual premium and as per section 10D death claim is completely tax-free.
Disadvantages of Endowment Plans
a. It’s a low yield policy
b. The premium is relatively higher than a term plan
c. The surrender value is lower than the premium paid
What is pension plan ?
A defined benefit pension plan is a major type of pension plan in which an employer/sponsor promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns. It is 'defined' in the sense that the benefit formula is defined and known in advance. Conversely, for a "defined contribution pension plan", the formula for computing the employer's and employee's contributions is defined and known in advance, but the benefit to be paid out is not known in advance.
A traditional pension plan that defines a benefit for an employee upon that employee's retirement is a defined benefit plan.
The most common type of formula used is based on the employee’s terminal earnings (final salary). Under this formula, benefits are based on a percentage of average earnings during a specified number of years at the end of a worker’s career.
In the private sector, defined benefit plans are often funded exclusively by employer contributions. For very small companies with one owner and a handful of younger employees, the business owner generally receives a high percentage of the benefits. In the public sector, defined benefit plans usually require employee contributions.
Over time, these plans may face deficits or surpluses between the money currently in their plans and the total amount of their pension obligations. Contributions may be made by the employee, the employer, or both. In many defined benefit plans the employer bears the investment risk and can benefit from surpluses.
Defined contribution plan
In economics, a defined contribution plan is a type of retirement plan in which the amount of the employer's annual contribution is specified. Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts (through employer contributions and, if applicable, employee contributions) plus any investment earnings on the money in the account. Only employer contributions to the account are guaranteed, not the future benefits. In defined contribution plans, future benefits fluctuate on the basis of investment earnings. The most common type of defined contribution plan is a savings and thrift plan. Under this type of plan, the employee contributes a predetermined portion of his or her earnings (usually pretax) to an individual account, all or part of which is matched by the employer. Generally, specifies a defined contribution plan as a plan which provides for an individual account for each participant and for benefits based solely on the amount contributed to the participant’s account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which may be allocated to such participant’s account.
