How should I determine the duration of any endowment plan that I take?

endowment plan

As a potential policyholder, the main intention behind buying a policy is to get better financial coverage. While many buyers usually look for a policy that offers a broader coverage, they often tend to overlook the duration of the plan. Many policyholders often surrender their policies after a period because they choose a long-term policy.

When investing in an insurance policy, such as endowment insurance policy, it is vital to consider its duration.

What is the ideal duration of this policy? What factors should be considered in determining the term? Read on to know more about this.

What is an endowment policy?

It is a type of life insurance policy in which the insured gets dual benefits of investment and insurance under the same policy. The premium you pay towards the policy is used for these benefits. Money is invested in a fund of your liking and the returns from it are compounded to provide maturity benefits. The life cover provided under the insurance part offers financial assistance to your loved ones from life risks. In the event of your untimely demise, the insurer will pay a death benefit to your dependents. This amount helps them remaining financially sustainable.

What should be the term of the policy?

Endowment insurance policies usually come with a term ranging between 10-25 years, although it varies among insurers. People who opt for a short-duration policy may have a higher risk appetite and want quicks gains; people who opt for a long-term policy, generally, want a higher corpus for their future.

While the benefits may vary depending on the term, the following factors are applicable for everyone when it comes to selecting the tenure:

  1. Life goals
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As you get a good amount in the form of sum assured in this policy, it can be used for fulfilling your life goals. If your life goal is saving enough money for a new home, a trip abroad or for medical emergencies, opting for a short-term policy could be suitable. As mentioned earlier, if your risk appetite is higher and you want higher returns on your investment in a shorter period, a short-term policy may be preferable choice.

However, if your life goal is to save for your children’s education and marriage, or to ensure your partner’s future in your absence, a long-term policy would be highly beneficial for you.

  1. Financial condition

The sum assured that is offered in the policy helps you or your loved ones enjoy a financially secure future. Depending on one’s needs, they might opt for a policy with a higher or lower sum assured. If you were to opt for a policy with a lower sum assured, the cost of the policy would be lower, irrespective of the duration of the policy.

However, if you opted for a higher sum assured, your premium would increase substantially. If you opt for a short-term policy with higher sum assured, you would be required to shell out a higher premium amount. If you fail to pay the premiums, the policy could lapse due. On the other hand, if you opt for a long-term policy with a higher sum assured, you get flexible payment options that may not impact your finances.

  1. Age of the insured

When you opt to purchase a policy at a young age, the cost of the policy is lower. However, if you purchase the policy at a later stage of life, the cost will be higher. This is mainly due to changes in the body as you age. Your medical condition impacts the costs. For example, if you opt for a policy with the duration of 20 years at the age of 35, you could end up paying more. Compared to this, if you bought the policy of the same duration at the age of 27, the premium would be lower.

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These are just a handful of factors that help you determine the duration of your policy. The duration shall be selected based on the requirements and financial stability. You can get in touch with your insurance advisor to know about other factors. You can also use the life insurance calculator to know how much a policy would cost based on the duration and your age.

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