The insurance companies in India offer a variety of life insurance plans to suit the varying needs of the people. You must know about the different types of plans available if you want to purchase a policy. In this post, we compare term plan and endowment plan.
If you are looking for a life insurance policy, it is paramount that you understand the difference between a term life insurance plan and an endowment plan. Often people tend to believe that both the policies are the same and use the terms interchangeably. But term policy and endowment policy are different in terms of features, the benefits, and the purpose.
What is term insurance?
Term insurance is the most basic type of insurance plan. It is a pure protection plan that offers financial cover for a specific number of years (depending on the policy term you choose). During the term, if anything untoward happens to you, the insurance company will pay the death benefit in a lump sum (equal to the sum assured) to the appointed nominee.
What is an endowment life insurance policy?
An endowment policy is an investment-cum-protection insurance plan that offers the dual benefit of protection during a crisis as well lets you earn a valuable return on your investment.
Different between term policy and endowment policy?
| Term Plan | Endowment Plan |
| It is a pure risk protection plan that offers financial cover in case of death of the policyholder | It is a combination of insurance protection and investment |
| It is a must-have financial investment for everyone to secure their family financial future | It is an ideal investment tool for people who wish to grow their money and get protection under a single insurance plan |
| It is highly beneficial for people whose family members are financially dependent on a single breadwinner (the policyholder) | It is one of the best alternative investment options for the risk-averse investor |
| Under the term insurance plan, if the policyholder outlives the insurance duration, they do not get any maturity benefit | You are liable to get a maturity benefit on the maturity of the policy if you buy endowment policy |
| With term insurance, you get only the death benefit | With endowment insurance, you get both death benefit as well as maturity benefit |
| Generally, the sum assured that is offered as the death benefit is 20 times the annual income of the policyholder | The sum assured as the maturity benefit is not significant, but it is an excellent investment option |
Term Insurance or Endowment Policy – Which is Better?
Your insurance buying decision should be based on your specific needs. A lot of investment experts suggest that you must not mix insurance with any other financial goal. Hence, a pure protection policy like a term plan has the edge over endowment policy.
Endowment plan invests your money in the stock market and other instruments, their returns are linked to market movements. It means that there is no guarantee of returns, and sometimes if the market is volatile, the returns may be below your expectation. Also, the premium of such policies tends to be higher than term insurance plan.
The insurance companies tend to deduct mortality and other charges for endowment plans, they return only the remaining amount at the time of maturity. Thus, the benefits you reap from an endowment policy in terms of returns is much less as compared to the protection benefits.
It is better to assess your exact needs before making your final insurance buying choice. You should buy term insurance if you have invested in other financial tools. If you want the dual benefit of investment and protection from a single investment, an endowment policy would be a better choice.
