Endowment & Moneyback policy are hybrid insurance product which also provides saving opportunity along with risk-cover to the insured or policy holder. It is also known as NON-ULIP plan or traditional life insurance plans.
An endowment policy is a protection-cum-saving product offered by insurance company to pay the lumpsum corpus on the expiry of the policy that is on maturity or on the death of the insured. It can be termed as investment plan that offers returns along with death benefits. A policy with option of liquidity is termed as moneyback policy. Beneficiaries or policy holder gets maturity benefits in equal instalment which is pre-determined fix interval & a lumpsum on the maturity. Policy gets expired on the maturity or on the death of insured.
Few benefits provided are:
- Tax benefits (EEE Status)
- Returns & invested corpus is tax free on maturity.
- Tax deduction can be claimed under section 80C upto Rs 150000 && section 10(10D)
- No downside risk& Capital protection
Argument against endowment plans:
- High administration charges & commissions
- The factor that goes against endowment plans are the charges. A significant percentage of the premium paid, are deducted in the form of various fees & charges, the biggest component being distributor commissions & administration.
- Returns
- Average returns provided by such traditional plans ranges around 4.8% per annum, there are plans which provides IRR of 2-3% return only.
- Moreover, there are better tax saving options that guarantee higher returns. For instance, PPF offers a tax-free return of 7.1% as on April 2020
- Insurance coverage under endowment plans is not enough to cover the liability & dependent expenses in case of uncertain events.
We suggest investor to avoid & don’t opt for traditional life insurance plans to save taxes. Use Pure Term insurance plans to build out a significant Death benefit & ELSS Mutual Funds to fill in Section 80C gap & earn inflation beating returns. Compare best Term insurance & Mutual funds today on Finbingo.