Term Insurance or Endowment Plan: Which is Better?

Term Insurance or Endowment Plan: Which is Better?

Often the policy-seekers get confused that in which type of plan they should invest in, a term plan or an endowment insurance plan. when you are not clear about the difference between the two, this type of doubt is very normal. Both term and endowment plans offer life insurance cover. But there, the similarity ends. They essentially differ from each other when it comes to investment or building a financial corpus. 

Before investing our hard-earned money, we need to understand the purpose of our investing and our requirements. There are two broad types of options in which you can invest, namely an insurance plan and an investment plan. An insurance plan, ideally, offers protection in the face of uncertain unfortunate events, such as death, accident, etc. It provides a lump sum amount of money to the family of the life assured in case of his/her demise. It helps to take care of the other financial liabilities such as loan rents, EMIs, expenses for the child’s education, etc. On the other hand, the investment plans come up with double benefits of investment and insurance as well. With the help of an investment plan, you can not only safeguard yourself and your family, but also you can build wealth or generate a regular flow of income at the same time. And there lies the crux of the difference between term insurance and an endowment plan. for more details, have a look at the below mentions.

There are various types of life insurance policies in the market, among which the term plan is widely popular because of its extensive features. As the name suggests, this type of plan is for a limited period of time, and it has a very pocket-friendly premium rate. the policy tenure for a term insurance plan can be chosen by the life assured as per his/her convenience, but the maximum period is up to 35 years. One of the unique features of a term plan is payments are fixed, and that does not rise during the term period. A term insurance plan is highly flexible as it can be customized according to your needs, such as you can add different additional benefits/riders like waiver of premium, accidental death, etc. 

In the case of an unfortunate and untimely demise of the life assured, the beneficiary or the nominee is entitled to receive the benefit amount as written in the policy document. It is important to note that a basic term insurance plan only provides the death benefit, but in case of the survival of the life assured throughout the policy term, he/she will not receive any survival benefit. Most policyholders find term insurance plans as the most affordable and beneficiary.

The endowment plans are popular for their dual benefits as it comes with a combination of insurance and investment benefits, just like the Unit Linked Plans (ULIP). When one purchases an endowment plan, he/she can save regularly over a certain period of time, and at the end of the period, he/she is entitled to receive a lump sum amount when the policy matures. This benefit is only available when the insured person survives the entire policy period. 

Endowment plans are very beneficial for your retirement age because buying an annuity policy with the sum received helps you to generate a monthly flow of income for the rest of your life. In the case of the unfortunate and untimely demise of the life assured, the beneficiary or the nominee will receive the sum assured along with the applicable bonus if any. There are different types of endowment policies available in the insurance market in India to cater to the varied needs of individuals. You can calculate the adequate life coverage and the investment needs that you need for your family. A good endowment plan acts as a financial shield for your future and helps you to meet your long- and short-term dreams in your life.

Difference Between a Term Insurance or Endowment Plan

The following table talks about the specific difference between a term and an endowment plan. Have a look to get a clear picture.

ParametersTerm insurance planEndowment plan
Type of planIt is only an insurance plan that takes care of your family’s financial needs in your absence.It is a combination of investment and insurance plans.
Ideal forIt is a must-have insurance plan for financial security for everyone.It is suitable for those who want to build a financial corpus while availing of the protection too.
Premium rateTerm insurance plans are the most affordable life insurance plan in the market. You can have a high sum assured option at a minimum premium rate.Usually, the premium rates for the endowment policies are higher than the term insurance plans.
Rider benefit optionThe coverage of your term plan can be extended with rider benefits such as critical illness cover, return of premium, accidental death benefits, etc.Endowment plans also offer add-on covers such as waiver of premiums, accidental death benefits cover, critical illness cover, etc.
Maturity benefitGenerally, a basic term insurance plan does not offer any maturity benefit unless and until you have bought a return of benefits cover. In that case, you will get the paid premiums towards the plan.Endowment plans come with maturity benefits that are payable at the end of the policy term.
Sum assuredUnder a term plan, you can get a sum assured amount, which is 15 to 20 times higher than your annual income at a minimal premium rate.Under an endowment plan, if you opt for a high sum assured option, you have to pay a high premium for that.
Death benefitThis plan is popular for its death benefit facility, which is given to the nominee or the beneficiary, in the case of an untimely death of the life assured.This plan also comes up with the death benefit facility. But that might not be adequate to meet the financial needs of the family.
Payout modesIn a term plan, the payment of the sum is usually in a lump sum or monthly installments, or a combination of bothIn this case, the payment of the sum promised and the maturity benefit is given in a lump sum amount.
Withdrawal optionYou cannot withdraw money from a term insurance plan.In case of a financial emergency, you can make a partial withdrawal after a certain period of time.
Tax benefitsOne is eligible to avail of the tax benefits on premium paid under Section 80C and tax deduction on maturity benefits under Section 10 (10D) of the Income Tax Act, 1961. In the case of critical illness rider benefit, an extra tax benefit can be claimed under Section 80D.You can avail of the tax benefits on premium paid towards the policy under Section 80C and tax deduction on maturity benefits under Section 10 (10D) of the Income Tax Act, 1961.

Final Take, Which One Is Better?

If you are the only breadwinner of your family, a term insurance plan is ideal for you as it would offer financial protection to your family, even when you are not around, and you can get a term plan at a very pocket-friendly premium rate. So it does not unnecessarily burden you economically. On the other hand, if you have certain long-term goals in your life like the marriage of your child, your child’s higher educational expenses, or to live a secured and tension-free life in your post-retirement days, an endowment plan is suitable for you as it helps you to build a financial corpus. An endowment plan may be dependent on the market risks, and moreover, they charge higher premium rates. So, do assess certain factors such as your financial conditions, future goals, requirements, future inflation, etc., properly and correctly; do some market research; if necessary, take a help of a financial advisor, only then opt for a plan wisely. Be it a term plan, or an endowment policy, it should cater to your purposes properly.

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