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Endowment Plan – Why Parents Must Invest In It?

Like a typical endowment plan, a child endowment plan is a life insurance policy offering dual benefits of life insurance and savings in one policy but with additional benefits.

  • 5,500 Views | Updated on: Apr 25, 2024

Every parent is concerned about their children’s future. Financial security is one of the most critical aspects of children’s future. So, parents do everything possible to ensure their children don’t face economic issues. Investing their earnings in a child savings plan or other best investment plan for children is one of the best solutions.

In this article, we will discuss the best investment plan for children and highlight the features and benefits of child investment plans, like endowment policy insurance, to give you a better perspective on the ideal features a parent should look for in a child savings plan.

Endowment Plan: The Best Investment Plan for Child

Just like the ULIP policy, an endowment plan is a modern life insurance option available in the market with a dual benefit. The best endowment plan offers the policyholder a blend of life insurance and investment. In this life insurance option, the policyholder gets the best of both; investment returns as maturity and death benefits in case of the policyholder’s unfortunate demise.

In an endowment plan, the policyholder or the nominee receives a lump sum amount either after a specific policy term or post the unfortunate demise of the policyholder, depending upon the situation.

Thus, it is one of the best investment options that a person looking to invest hard-earned money can opt for. Moreover, you get a living benefit through periodic payouts and simultaneously enjoy life insurance cover. Endowment plans are the best pick for your children. There are dedicated endowment plans for children that a parent must look through and opt for, depending on how one of these child endowment plans is fulfilling their child’s financial requirements.

What is a Child Endowment Plan?

Like a typical endowment plan, a child endowment plan is a life insurance policy that offers dual benefits of life insurance and savings plans in one policy but comes with additional benefits. In this plan, a policyholder, in addition to having the flexibility of choosing a sum assured amount as per their financial requirements, also guarantees a payout in the event of the parent’s death or when the child attains an age of adulthood. In addition, you also get regular bonuses on an endowment plan.

These features make a child endowment plan the best investment plan for a child that a parent must choose for investing in their child’s future while ensuring excellent financial growth of the invested funds.

*Note: Different policies define adulthood or child maturity age differently. Thus, it is suggested to read policy documents carefully.

Features of a Child Endowment Plan

While specific features can vary depending on the insurance company or financial institution offering the plan, here are some common features you might find in a child endowment plan:

  • The minimum age criteria to own a policy is 91 days. This means the child must be of 91 days old to hold a policy.
  • The maximum age criteria to own a policy is 13 to 15 years based on the policy guidelines of different insurance providers.
  • The minimum sum assured can be ₹1 lakh.
  • The maximum sum assured can be up to ₹1 crore. However, other child endowment plans have no upper limit.

Reasons Why Parents Must Invest In Endowment Plan

From ensuring quality education to instilling financial discipline and from guaranteeing a safety net to cultivating lifelong financial habits, the benefits of endowment plan are multifaceted and far-reaching.

Financial Security

The primary objective of an endowment plan is to provide financial security to your family, especially in case of your untimely demise. By investing in this plan, parents can ensure that their children are financially protected and can meet their life goals even if they are no longer around to support them.

Savings and Disciplined Investing

An endowment plan encourages disciplined savings as you commit to paying regular premiums. This disciplined approach ensures that a portion of your income is consistently set aside for the future.

Long-Term Goals

Parents often have long-term goals for their children, such as funding higher education, marriage, or starting a business. An endowment plan’s maturity benefit can provide a substantial lump sum amount that can be earmarked for these goals.

Tax Benefits

Endowment policy insurance typically offers tax benefits under section 80C of the Income Tax Act. The premiums paid are eligible for tax deductions, reducing your overall tax liability. Additionally, the maturity benefit is often tax-free, making it a tax-efficient investment avenue.

Protection Against Inflation

Inflation can erode the value of money over time. An endowment plan provides a hedge against inflation by providing a lump sum amount in the future that is often higher than the sum of premiums paid. This ensures that the policy’s proceeds maintain their purchasing power.

Guaranteed Returns

Many endowment plans offer guaranteed returns on both the premiums paid and the maturity benefit. This stability can provide a sense of security in an otherwise unpredictable financial landscape.

When is it Appropriate to Acquire an Endowment Plan?

Late 20s or early 30s is the ideal time to make an investment in this kind of plan. Your maturity amount will increase the sooner you begin your savings plan. Opting for an endowment plan becomes advisable to address three key aspects:

  • Ensuring the well-being and financial security of your loved ones.
  • Attaining your desired financial milestones.
  • Cultivating savings to fulfil long-term investment objectives.

Nevertheless, it is important to contemplate procuring a regular premium plan only if you possess a dependable income source that can consistently cover the premium payments. Endowment plans hold distinct advantages as they offer superior returns over extended periods and are designed for the long term.

Wrapping Up

Experts believe that the best time to buy a policy is today. And when it is about the financial stability and security of your children and their future, you must opt for the best investment plan for your child. Endowments ensure your children will be financially stable. Additionally, your children will have a monetary corpus at their disposal.

Key takeaways

  • The primary objective of an endowment plan is to provide financial security to your family, especially in case of your untimely demise.
  • A child endowment plan is a life insurance policy that offers dual benefits of life insurance and savings plans in one policy but comes with additional benefits.
  • The maximum sum assured can be up to ₹1 crore.
  • An endowment plan encourages disciplined savings as you commit to paying regular premiums.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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