Tag Archive | "Pension Insurance"

Retirement Plans or Endowment Plans-Which Option is Good?

  • Easypolicy
  • 17 Dec 2012

Retirement plans play an important role in an individual’s financial preparation as he or she steps towards retirement age. There are decisions involved in retirement planning, and so are questions about those decisions. After all, decisions in retirement planning have a direct impact on claims, and it is only natural that you would want to set things right at the outset.

One of the common questions is with regard to the choice between retirement plans and endowment plans. You must have heard of endowment plans and their usefulness as tools towards retirement age. However, you must have also heard of retirement plans. What are those and how useful would they be? If you are getting ready with retirement planning, should you go with retirement plans, or should you choose endowment plans? You would have clarity about the question and the impact of your choice on your claims, as you read through.

What are Retirement Plans?

There are many options available for retirement planning. As people get ready for their retirement age, the prominent idea is to make claims that would satisfy their need for financial security as and when they needed them. Retirement planning involves many tools, such as investment in Public Provident Funds (PPF), National Savings Certificate (NSC), National Pension Scheme (NPS), investing in Post Office Monthly Income Scheme (POMIS), creating Fixed Deposits (FD), and of course, investing in insurance.

What are Endowment Plans?

Endowment plans combine life insurance with an investment part. They are designed to provide you with an insurance cover for a specified period of time. This is considered as an attractive action for those inching towards their retirement age for two reasons – one, endowment plans provide with the insurance cover needed for the period of insurance; and two, even if claims are not raised for insurance within the period, there would be a sum Assured that would be repaid at the end of the insurance period. In effect, with endowment plans, you would be able to get your Sum Assured back at the end of the insurance Term when you survive the term of the insurance Policy without staking claims.

Unit-linked Pension Plans Vs Traditional Endowment Plans

Unit-linked plans have been among the popular options for many looking for the benefits of higher returns associated with changes in the market. Retirement plans that are unit-linked and geared towards retirement age are legally bound to provide insurance as part of the package. You could use unit-linked pension plans for retirement planning, where one part of the corpus is paid back to the policyholder, and the other part is continually invested to provide for a steady flow of funds in retirement.

Endowment plans, as have been discussed, are time-bound – they provide insurance cover for the entire duration of the policy, giving you the freedom to stake claims while being equipped with an investment option and annual bonuses. The returns from endowment plans could be expected to be lower than those from retirement plans that are unit-linked, since unit-linked plans are market-oriented, while investments are done in more stable instruments such as government bonds in the case of endowment plans. Further, there would also be no assured annual bonuses associated with endowment plans. You could also expect higher premiums to be paid, given that you have survival benefits on your side.

The decision to choose between endowment plans and retirement plans that are unit-linked, hence, depends very much on the kind of safety that you would want on your invested funds, the cost that you would want to pay in the form of increased premiums, and the balance that you would want to strike among risk, returns, and insurance in your retirement planning. Investment decisions as you approach retirement age have to be suited to your individual circumstances for you to make the best of them.

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money back plans for life stage planning

  • Easypolicy
  • 15 Nov 2012

While planning an investment many a times you need a level of security that the money will be available to you and the family at the time of need. At times you wish to plan investments such that it provides financial assistance at specific times during life. Money back plan is favored by many for this very reason. It provides life insurance as well as survival benefits and is considered an important part of life stage planning.

What is Money Back Insurance
Money back insurance plan is a fixed duration insurance plan that offers survival benefits to the insured. Here a person is Insured for a specific amount called the sum Assured or sum insured and gets a Maturity benefit in case the person survives the duration of the insurance.

It is a traditional investment insurance plan where the returns are fixed at the beginning, the time of purchase. Survival Benefit or the maturity amount is paid out in parts at fixed intervals and balance, including Bonus if acquired, is paid out at the maturity date. Sum Assured is payable in case of death of the insured during the Policy term. It is paid irrespective of any survival benefits paid in between.

Here you have the flexibility to decide upon the sum assured and the maturity amount. Premium is calculated on the basis of these two factors. Minimum levels of insurance and maturity are generally fixed for specific policies.

Benefits of Money Back Plan

Money back plan has emerged a preferred Investment Insurance Plan for the following reasons:

1.Survival benefit is paid at regular intervals. This can help the investor plan for crucial stages of life. For example, if a money back plan makes partial payment of the maturity amount every five years. You can plan it as a child education support fund as you may need this extra financial support for the child’s admission in school, and thereafter as the child grows for extracurricular or extra coaching etc.

2.In case of death during the policy term, survival benefits paid till date are not deducted from the sum assured. Full sum assured is paid as death benefit.

3.Bonus if applicable is calculated on sum assured and is not affected by any survival benefits paid during the policy years.

4.Being a traditional plan, the investment is absolutely safe. Promised amount as mentioned in the policy is paid to the investor irrespective of any ups and downs in the financial sector. The insurance company is bound to pay the fixed amount at the specified intervals.

5.Most plans have guaranteed additions over and above the fixed payable amount payable at the maturity of the policy.

Limitations of Money Back Plans

There are certain limitations of money back plans that one needs to think about besides the benefits:

1.The premium is higher than a Term insurance plan – Since there is investment and survival benefit involved, premiums are higher than the term plans.

2.Rate of return is limited to 5%-8% as the money is invested in secure funds. So, if you are looking for higher returns, you may want to rethink.

3.Money back plan is not flexible as other investment options can be. The premium cannot be increased or decreased midway. It is not advisable to surrender the policy before the policy maturity date. 

Must Do

1.Make sure that the regular paybacks are enough to meet or support your perceived needs at that time.

2.Make sure that the premium amount and duration are convenient to you.

3.Read the policy document carefully to understand the terms and conditions, actual amount payable and required conditions of paybacks.

Looking at all the pros and cons, money back plans are ideal for those looking for secure investments and savings over a period with regular paybacks. It can act as an important financial resource for managing crucial stages or planned expenses. Returns are limited but secure.

If you are not ready to take the market risks, want the security of insurance and need inflow from your investments from time to time, money back plans are meant just for you.

how endowment plans work?

  • Easypolicy
  • 31 Oct 2012

An endowment life insurance is a combination of insurance and savings i.e. the life of the person taking the Policy is Insured for a certain amount. This life cover is termed as the sum assured. What exactly happens is that, a certain part of the Premium gets distributed towards this sum assured, some part of it (the premium) is diverted towards the administrative expenses of the insurance company selling the policy and the remaining portion of the premium gets invested.
The Endowment Plan is one of the most popular insurance plans of India now. The objective of the policy is to provide security as well as save money for future .So what is endowment plan? An endowment insurance plan can be perceived in the given way.

Endowment Insurance = Protection + Investment plan

In a layman’s language it can be said that life insurance plans like “Term Insurance” provide life cover and the benefits are given only at the demise of the person insured. Whereas “Endowment insurance plans” are meant for savings, as the money accumulated due to payment of premiums can be availed even if the person insured remains alive. Hence endowment life insurance in general costs more. The premium is high because at the Maturity time you will get the Assured amount and the Bonus accumulated for the insurance premium as the profits.

In the event of death of an endowment insurance plan holder during the Term of the policy, the nominee receives the Sum Assured plus the bonus/participating profit/guaranteed additions, if any. The bonus or profit is paid for the number of years that the insured survives in the policy term, so you can see what a good investment plan it is. Endowment plan is a very good option for young people as it offers them an opportunity not only to cover themselves for Risk but also provides financial freedom to them in old age by way of maturity benefit.

If you still have questions on what is an endowment plan and how the various endowment plans work, then read on, the various types of the endowment plans are discussed below:

Unit-linked endowment policy

Unit-linked endowments are those life insurance policies where the premium is endowed in units of a aggregate insurance fund. Units can be redeemed to cover the cost of the life assurance. The insurance policy holders get the option to choose the funds where their premiums are to be invested in and in what proportion. The current unit prices available on newspapers and on the internet on a regular basis and the encasement value of the policy is same as the current value of the units.
Full endowments policy

The full endowment plan is a highly profitable insurance plan where the basic sum guaranteed is equal to the Death Benefit at the beginning of the policy and, if the insured chooses growth option, the final payout would be much higher than the sum assured.

Low cost endowment policy

The main objective of a low cost endowment has been to pay off loans or you can look at it as an investment plan for paying off loan .It guarantees a yearly growth rate but does not guarantee of paying off your loan (for which you might have taken the policy) in full at maturity. The growth assumption rate is used to determine your monthly premium. In case of profit less than the initial growth assumption, you would have to figure out the funds to cover the shortfall. However, you will be alerted during the term of the life insurance policy if your plan looks insufficient to cover your goal, in which case you can increase your monthly premium.