Understanding the financial needs of your loved ones is the first step towards securing their future. It enables you to evaluate which investment or insurance product will give you the best results for a particular situation. It is a common concern among policyholders to choose between term insurance or an endowment plan. Hence, detailed term insurance vs endowment plan analysis can be helpful.
What is Term Insurance?
Before you go into term insurance vs endowment plans, it is essential to understand each separately. You can have a better idea of the difference between term insurance and endowment plans by doing so. It will allow you to make a much more informed financial decision for your family.
Among different types of life insurance policies, term insurance is widely known. It is a simple insurance product that gives life coverage to the insured individual for an extended period. It is up to the insured individuals to decide the ‘term’ for which they require life cover.
In case the insured passes away within the policy period, their nominee is entitled to receive a death benefit. The sum assured payable is predetermined at the time of buying the term insurance. Most people consider term insurance as one of the affordable types of life insurance.
Like most insurance policies, you have to pay a certain premium amount periodically to keep the insurance active. It is important to note that a basic term insurance policy only offers a death benefit. It means that there is no survival benefit given to the policyholder if they survive the policy term.
What is an Endowment Plan?
An endowment plan is another popular life insurance product available in India. It offers dual benefits of insurance and investment, similar to a unit-linked insurance plan. However there are certain features of an endowment plan that make it different from a term plan.
When you purchase an endowment plan, you can save regularly over a specific period. At the end of the period, you can receive a lump-sum amount when the policy matures. It is only receivable if the insured survives the policy term.
In case of the death of the insured within the policy term, the insurance coverage kicks in. The nominee will receive the sum assured and any applicable bonus as a death benefit in this situation.
There are different types of endowment plans available to cater to diverse financial needs. You can calculate adequate life coverage or investment needs of your family to use them appropriately. It will help create a financial shield for the future and meet long and short-term objectives in life.
Points of Difference Between Term Insurance and Endowment Plan
At every stage in life, financial planning gives you the required stability and confidence. You can save and grow your money efficiently if you invest wisely and at the right time. As we know, life can be unpredictable, which makes it vital to be prepared for financial emergencies.
For that purpose, striking a balance between insurance and investment is necessary. When you secure your life in financial terms, you can make sure your loved ones are protected in times of crisis. Along with that, the growth of your savings over time allows you to meet other significant goals in life.
When you look at term insurance vs endowment plan, you will understand how the two products can help achieve several life goals. Now that you are familiar with the basic definition of term insurance and endowment plan, let’s review some important term insurance vs endowment plan pointers.
| Term insurance is a life insurance product that offers life coverage to the insured. | An endowment plan is a life insurance product that includes insurance and investment components. |
| It is best suited for people who want to secure their families financially in their absence. | It is best suited for people who are looking for wealth-creation opportunities along with insurance coverage. |
| Term insurance is commonly known for its affordability. You can get life coverage for an extended period at nominal premium rates. | Endowment plans may have a slightly higher premium rate than term insurance since they offer both insurance and investment features. |
| Term insurance is not a savings instrument. | Endowment plans can be used to save your earnings for the future efficiently. |
| You can select the sum assured for the term plan depending on your income, anywhere between Rs. 10 lakhs to a few crore rupees. | With an endowment plan, a higher sum assured means paying a higher premium. |
| In general, there are no maturity benefits associated with a pure-term insurance policy. However, if you opt for a return of premium rider, you will receive the premiums paid at the end of the policy term, in case of survival. | An endowment plan offers a maturity benefit at the end of the policy term. |
| There is no facility to liquidate the investment in term insurance. | You can make partial withdrawals of the sum assured with an endowment plan in case of a financial emergency. |
How to Choose Between Term Insurance & Endowment Plan?
When you are familiar with the difference between term insurance and endowment plans, it is easier to choose between the two. However, it is important to analyze how they affect your financial situation. Some critical points to remember when deciding between an endowment plan vs term insurance are:
1. Financial Objective
Each person has a set of expectations from life that vary for several reasons. The kind of lifestyle you lead, your number of financial dependents, and your needs are some common factors that affect your life considerably.
It is in your best interest to map your requirements to have clarity about term insurance vs endowment plan. Ask yourself if it is insurance investment, or a combination of both that will give you the best results in the future.
2. Current & Future Expenses
In life, there are countless expenses that you have to manage daily. The cost of living is rising steadily, which is why the growth of savings over time is crucial to meet future needs. Depending on the expenses you have to manage with your income, you can examine the suitability of term insurance vs endowment plan.
3. Affordability
As mentioned earlier, the cost of purchasing term insurance vs endowment plans varies because of the distinct benefits. You can decide which of them is preferable to you by understanding your financial profile carefully. It will also help determine the sum assured that is sufficient for your family with either of the policies.
In case you end up overestimating the sum assured, you may not be able to keep the policy in force. Hence, you may lose valuable savings and benefits from insurance or investment vehicles.
4. Life Goals
Having a vision of your goals for the future is an essential part of financial planning. When you know what you want 20 or 30 years from now, you can effectively decide between term insurance and endowment policy.
As more and more Indians incorporate the purchase of different life insurance plans as part of their overall financial strategy to reach their chosen life goals, life insurance ownership in India is on the rise. Max Life IPQ 6.0 recorded the highest-ever LI ownership of 75%. Read the full India Protection Quotient 6.0 survey for more insights into how Indians perceive their financial preparedness.
Comparison at a Glance
A comprehensive understanding of term insurance vs endowment plan plays a massive role in deciding your investment decisions. It is safe to say that a financial plan is incomplete without insurance and investment options in today’s time. Therefore, it makes sense to understand the difference between term insurance and endowment plans.
The primary difference between a term plan and vs endowment plan is that the former is a pure insurance product while the other is a combination of investment and insurance. Since endowment plans offer more extensive benefits, they are usually more expensive than term insurance. However, you can get rider benefits and tax benefits with both of them, depending on the insurer and the policy terms.
Comparing term insurance vs endowment plan essentially means understanding where you can spend your money for better returns. It is a process of identifying your own financial needs in life. Think of term plan vs endowment plan as a checklist that you go through to make necessary adjustments in your financial plan.
Frequently Asked Questions (FAQs)
Q. Do I Get Maturity as well as Death Benefits with an Endowment Plan?
A. An endowment plan offers a death benefit to the insured’s family and a maturity benefit to the policyholder on surviving the policy term.
Q. How Much Life Cover Should I Choose with Term Insurance?
A. The amount of life cover suitable for your family depends on various personal factors such as your age, lifestyle, and income. Other important things to consider are life goals, such as a child’s higher education, marriage, inflation rates, and more.
Q. Can the Duration of Life Cover be Changed with Term Insurance?
A. It is not possible to change the duration of life cover once the policy is active.
Q. Are There Any Riders Available with an Endowment Plan?
A. You may add riders such as partial/total disability riders, critical illness insurance, and accidental death rider to an endowment plan. It would help if you confirm with the insurer about the same.