- What is Term Endowment
- Difference b/w both
- Which one is best?
Difference Between Term Insurance and Endowment Plan
In terms of insurance, most people are just aware of whole life insurance or term insurance. Through this article, we're shedding light on the difference between a term plan and an endowment plan. Both plans serve significant life objectives and are designed to cater to different needs. To put it simply, a term plan is a pure protection plan that offers death benefits to nominee when the policyholder has an untimely death.
On the other hand, an endowment plan is a financial tool that provides a life cover as well as helps you grow your money. To choose the right plan for yourself between term life insurance and an endowment plan, simply keep reading the subtopics below.
What is Term Insurance
Term insurance is a pure protection plan that offers financial protection to your family against the unfortunate death of the insured person. It is the simplest and most cost-effective way to get a high life cover at relatively lower premiums. A term plan is handy if you're your family's sole earning member and want to protect your family's financial future in your absence. Please note that there is no savings/profits component under a term plan. It is a basic plan that makes life insurance more affordable.
What is an Endowment Plan
An endowment plan is an ideal way to get financial protection against unforeseen conditions as well as long-term savings with guaranteed returns. It offers the dual benefit of life cover along with investments similar to a unit-linked insurance plan (ULIP). Unlike ULIP, when you invest in an endowment plan, you'll get assured returns. With the help of an endowment plan, you can save money for your future goals, whether it is retirement, children's education and marriage, or a house. Similar to the term plan, your nominee will receive the lump sum payment of death benefit in the event of your unfortunate death.
Basics of Term Insurance and Endowment Plans
Here is a list of the best investment plans you can opt for in 2024:
| Parameters | Term Insurance | Endowment Plan |
| Type of Plan | Pure protection plan | Dual Benefits of investment + protection |
| Who Should Buy? | Term plans are suitable for that individual who wants to protect their family's financial future in the event of their untimely death. | Endowment plans are best for those seeking long-term savings to fulfill future goals and financial protection. |
| When to Buy? | Buying a term insurance plan at the early stage of life is advisable. | An endowment plan can also be bought at an early age and for the long term. |
| Investment | You cannot invest in a term plan and grow your money. | Premiums paid during the policy are divided into two parts. Apart from life cover; the remaining premiums will be invested in the various fund options to provide returns. |
| Life Cover | Term insurance plans offer wide coverage in exchange for relatively low premiums. | An endowment plan is mainly a long-term savings plan that combines the twin benefits of investment and life cover. |
| Lock-in Period | No lock-in period. | Endowment plans have a 5-year lock-in period. |
| Returns | Term insurance does not offer any returns, only death benefits. | Endowment plans offer guaranteed higher market-driven returns. |
| Premiums | Term insurance offers high life cover in exchange for relatively cheaper premiums. | An endowment plan significantly has higher premiums due to a variety of charges. |
| Rider Benefits | With a term insurance plan, you can enhance your base cover by opting for optional in-built riders to get additional coverage against certain situations. | Same as term plans, endowment plans also offer optional in-built covers to enhance base coverage, including the accidental death benefit, return of premium, critical illness cover, etc. |
| Death Benefits | Under term insurance, insurers pay out the death benefits to the insured person's family if the policyholder passes away throughout the policy tenure. | In case the insured person passes away before the maturity period, the insurer will pay the lump sum death benefit to the beneficiaries. |
| Maturity Benefits | No maturity benefits. | You'll get maturity benefits along with investment returns. |
| Tax Benefits | Premiums are eligible for tax deductions of up to 1.5 lakhs Under Section 80C of the Income Tax Act; the death benefit is tax-free Under Section 10 (10D) of the Income Tax Act. | The death benefit and maturity benefits are tax-free Under Section 10 (10D) of the Income Tax Act, and the premiums are eligible for tax deductions of up to 1.5 lakhs Under Section 80C of the Income Tax Act. |
| Liquidity | Term plans have no liquidity; the life cover will only be paid if the policyholder dies. | Under Endowment insurance plans, you can withdraw your investments in very few cases. |
Terms Insurance & Endowment Plan: Which One is Best For You?
Undoubtedly, when it comes to choosing between term insurance and endowment plans, it mainly depends on your needs, future goals, responsibilities, and security because both products serve different purposes.
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Term Insurance
For an individual who wants a pure protection plan to ensure their family's financial future, term insurance will be a much better selection over an endowment plan. It is because policyholders can easily secure their family's future at cost-effective premiums and rest assured that their family can still live a comfortable life even in their absence. -
Endowment Plan
Everyone loves a buy one get one deal, so the same goes with an endowment plan. It combines the twin benefits of security and investments in a single plan. For an individual who wants to create wealth and seek a life cover for their family, endowment plans can be a good pick, even if they've to pay slightly higher premiums.
Conclusion
Term Insurance and Endowment plans have their own set of features and benefits. Both plans serve different purposes in life and are designed to cater to very different needs. It is essential to choose an ideal life insurance product that best suits your investment goals, future goals, and risk appetite. You can even reach out to our insurance experts to get a free plan comparison service.
Term Insurance vs. Endowment Plan: FAQs
1. What happens after maturity in the endowment plan?
Once the policyholder survives the policy tenure, they will receive the maturity benefits bonus along with a return on investment.
2. Is it worth investing in endowment plans?
Yes, when you invest in an endowment plan, you will get assured returns, and it helps you build an adequate corpus through disciplined savings.
3. What happens to an endowment plan when an insured person dies?
In case the insured person passes away before the maturity period, the insurer will pay the lump sum death benefit to the beneficiaries.
4. Does the Endowment plan offer guaranteed returns?
Yes, the endowment plan provides guaranteed returns that are pre-decided at the time of the policy purchase.
5. Which one should I buy, an endowment or a term plan?
Term insurance has relatively lower premiums with higher life cover. On the other hand, an endowment plan allows you to create wealth with life cover, but the premiums can be relatively high.
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Written By: Sahil Singh Kathait
A boy-in-squares bagging escapades of switching streets in groove & sensing musical airy-notes from 6 1". Under wayed nyctophile sketching the walls of life from the panorama of anime.
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