Should we invest into Endowment Policy?

Authored by: Malay Chitalia

These days, it has become a fashion to get Endowment policy surrendered & to invest the same money into Mutual Funds.

Few Fund Managers, few Mutual Fund advisors, by appearing in the so called reputed TV shows OR writing articles in the so called reputed News Papers are trying to misguide you. Why are they doing so?

There is a very simple logic behind this. In our country, people save ₹ 19/- out of ₹ 100/- into Endowment Policy. People invest only ₹ 3/- out of ₹ 100/- into Mutual Funds.    
Naturally, these big Fund Houses & Mutual Fund advisors want to pull your big monies into Mutual Funds. But they want to do it at your cost. It does not matter whether you gain or you make loss, their pocket should be filled at any cost.

Have you also become the victim of their trap?

Beware these frauds!

https://youtu.be/-RWM9zbe21o

(Click the above link to watch the video on the same subject.)

Some or other times in our lives, for a small or a bigger amount, we all have initiated an Endowment Policy. Since last 70 years, Endowment Policy has been treated as a good saving instrument in our country.

Today, we are going to discuss 3 scientific reasons, which will make you understand, why Endowment Policy is treated as a good saving instrument.

REASON NO.1

ENDOWMENT POLICY IS A FINANCIAL OBLIGATION

Obligation means, once you buy an Endowment Policy, you have to pay its premium without any default.

It is said that,

INCOME – EXPENSES = SAVINGS

(Income minus Expenses is equal to Savings)

This is a wrong formula. You will not be able to build savings by following this formula.

INCOME – SAVINGS = EXPENSES

(Income minus Savings is equal to Expenses)

This is the correct formula.

Endowment Policy compels us to make Compulsory Saving. While saving into all other instrument, you save the money at your discretion.

“What difference will it make, if I don’t deposit money into PPF a/c this year?”

“How will it harm me, if I stop contributing to SIP for next 6 months?”

But you cannot use your own discretion in an Endowment Policy. “Regularity is the key success!” This way, religiously built savings play a major role in achieving your financial goals.

My mentor Mr. R. Gopinath says,

“FINANCIAL DISCIPLINE GENERATES MORE WEATLTH THAN FINANANCIAL INTELLIGENCE !

– R. GOPINATH

And this way, Endowment Policy makes us follow “Compulsory Financial Discipline”.

Reason No.2

WITHDRAWAL FROM ENDOWMENT POLICY ATTRACTS PENALTY

If we withdraw money from Endowment policy, we need to pay penalty.

Endowment Policy is a long term contract. If you surrender it before time, you have to bear heavy penalty. If you withdraw loan from it, you have to pay interest. Both these conditions, stops you from withdrawing money.

The savings which have been built regularly, for a long period of time & without any withdrawal, helps you a lot to achieve your financial goals.

We must have heard many a times that before the Mutual Funds shows the balance of ₹ 10 Lakhs, people buy a new car out of these monies !

People spend Provident Fund money during their Children’s marriage !    

If there is no penalty over withdrawal, there are very high chances of the fund getting “misused” which was meant for a specific purpose!

Reason No.3

ENDOWMENT POLICY GIVES “GOAL TERM TENOR”

No matter how long your goal is, you will get the policy for that tenure.

Child Education, Child Marriage, Retirement Planning, Legacy Planning, these all are “Long Term Financial Goals”. They require a planning of may be 15 years, 20 years, 25 years !

Endowment Policy is the only instrument, which gives you your target amount despite of such a long term planning.

No matter how long your goal is, you may buy the policy for that long tenure.

For example; If you need the Education Fund when your child attains age 21, you may buy an Education Plan for 21 years.

If you want to retire after 15 years from now, you may buy a “Retirement Plan” for the term of 15 years.

For a Legacy Planning, it is advisable to invest into Whole Life Policy which yield returns throughout the life of the Policy Holder.

Friends ! After going deep into all these 3 reasons, now we know that “Endowment Policy is a fantastic saving instrument ! “

I am not against Mutual Funds. We must invest into Mutual Funds, very systematically.

But when it comes to “Time bound & Non-Negotiable Financial Goals”, Endowment Policy is the only option !

I repeat,

When it comes to “Time bound & Non-Negotiable Financial Goals”, Endowment Policy is the only option !So next time, if you come across a sophisticated person (a Fund Manager  or a Mutual Fund Advisor ) advising you to surrender your Endowment Policy, the RED LIGHT OF DANGER must lit in your mind.