Rising inflation can lead to a direct impact of the cost of living for everyone. This increase in the cost of living means you are spending your income more than you are saving it. This can be dangerous when it comes to planning your future. There are different life goals and plans that one wishes to accomplish in their lifetime. A considerable amount is required for to fulfil them. Your savings might not help in fulfilling these goals.
Considering that your inflation affects your income, you may need other sources of income to have a financially secure future. An endowment plan can be beneficial in such situations. However, if you already have one and are planning on surrendering it; read on to know why you should not.
What is an endowment plan?
An endowment plan is a type of life insurance policy. Just like ULIPs, you get the dual benefits of investment and insurance in this plan. The investment helps in increasing the money you have invested. The insurance part provides financial cover to your loved ones from life risks in your absence. However, in endowment plans, the maturity benefits you receive are guaranteed; whereas in ULIPs, the returns depend on the value of the units and where you have invested your money.
If you survive the term, you will receive the sum assured along with a bonus. However, if you were to pass away during the term of the policy, your family would receive a death benefit, along with maturity benefits once the plan matures. This would help them stay financially afloat in your absence.
Why are endowment plans surrendered?
Some of the usual reasons as to why this plan is surrendered include the inability to pay the required premium. This problem could arise if the policyholder is going through a tough financial period. One other reason why many people tend to surrender their plan is due to a lack of patience. Many investors hope to get higher returns rather quickly. This can be disadvantageous as this plan is for those who are looking for long-term benefits.
Why should you not surrender your plan?
Listed below are the reasons as to why you should avoid the mistake of surrendering your plan:
- Waste of money
Quite frankly put, you invest a lot of money when your purchase this plan. The premiums that you pay towards this plan are used for both investment and insurance. No matter when you surrender your plan, either immediately or after a few years, your hard-earned money goes to waste. Either you could have continued investing in the plan or you could have opted for a different plan before purchasing any endowment plans. The amount of money that could go down the drain needs to be considered.
- Loss of coverage
Endowment plans offer the benefit of insurance coverage to your loved ones in your absence. If you were to pass away during the term of your plan, the insurer would pay your family a death benefit. This amount would help them maintain financial stability for a time period. However, when you surrender your plan, your loved ones lose the coverage guaranteed under the plan. Even if you were to purchase another plan, for certain period of time, your loved ones will be exposed to considerable financial risk.
- Increased cost
Suppose you started investing in endowment plans at the age of 27. The premium would be considerably low and affordable. However, if you were to surrender the plan at the age of 40 and wanted to invest in a new plan, the new plan would cost you more than your existing plan. Factors such as age and medical condition of the policyholder are taken into consideration when the cost of the plan is being calculated.
What are the alternatives?
If you are unable to pay your premiums, you still get paid-up value. This essentially means that your sum assured is reduced, yet the policy is still operational. Your premium amount also reduces. If you have paid your premiums for 3 years, you are eligible for this option.
Endowment plans have many benefits when it comes to your future. Before you surrender it, you can always consider the paid-up value option. If you are planning on purchasing a plan, you can use the life insurance calculator to see how much you should invest in a plan.