Should You Go For An Endowment Insurance Policy In 2022?

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The question that college graduate just after getting a job usually ask is that “Should You Go For An Endowment Insurance Policy?”

Let’s understand this with a story!

Young earner Yash is a college graduate. He has been advised by an insurance agent to buy an endowment policy with a 30-year tenure. Premiums are Rs 30,000 per year, for a death benefit of Rs 10 lakh and an eventual maturity benefit of Rs 22 lakh on further life(if not dead).

This involves no risk at all. The advice that he receives is that it is the best time and age to start investing for his retirement. The policy provides him with the necessary life insurance cover, as well as the advantage of long-term savings after a certain period of time.

This is a combination of an insurance plan and a savings plan. Moreover, certain tax benefits are available when making investments and withdrawing funds. Doesn’t that sound like a cherry on the cake?

Does the death benefit sufficient enough to make any difference to his survivors if he dies? Is it worthy of the premium he will pay to receive the sum assured or the maturity amount? Is it worth the premium he will pay to receive the return? Unless all of these questions are answered positively, he should explore whether there are other insurance policies or plans that would satisfy his needs for a retirement corpus and life insurance.

Should You Go For An Endowment Insurance Policy?

Yash should expect a return of around 5.5% from the policy over a 30-year horizon based on its details, which is comparable to returns from fixed income. Depending on his risk appetite and time horizon, he might benefit more from a term policy and other investment plans. If he were willing to pay the same amount for both plans, he could split it equally between them. That way, he will likely achieve similar, if not greater results.

Fixed income investments would be safe for him if he is a risk-taker. Equity could be a good investment for him, since he is very young and has a long-term perspective, and the risk factor is reduced to a great extent. If an insurance company serves you with a high premium then it does not justify the low insurance coverage and low returns. The policy is ambiguous about the potential benefits of bonuses.

Is it truly necessary for Yash to have such assurances at such a large cost with sub-optimal returns? It is not suggested unless Yash has a very low-risk tolerance and does not want to develop his capital into a sizable retirement fund. A combination of term insurance and a risk-appropriate investment plan and strategy will be more beneficial to him.

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