Simplifying Life Insurance in India
Difference between Term Plan vs Endowment Plan - Which One You Should Opt?
What Is Endowment Insurance?
An endowment insurance policy gives you the opportunity to both invest and insure by paying premium periodically. On maturity, you can get a sumptuous amount as return from your investments. However, if you pass away before the policy matures, your nominee will be eligible to receive the sum assured to cover their expenses.
It is imperative for you to know the differences between endowment and term insurance to be able to better decide the most suitable plan to meet your financial needs.
What is Endowment Insurance?
An endowment insurance policy gives you the opportunity to both invest and insure by paying a single premium periodically. On maturity, you can get a sumptuous amount as returns from your investments. However, if you pass away before the policy matures, your nominee will be eligible to receive the sum assured to cover their expenses.
It is imperative for you to know what the differences between endowment and term insurance are to decide the most suitable plan to meet your financial needs.
Difference Between Endowment Plan and Term Plan
| Parameters | Term Insurance Policy | Endowment Insurance Policy |
| Type of Plan | It offers financial protection for your family in case of your untimely demise. | It offers both insurance and investment opportunities. |
| Cost of Premium | Affordable premiums. | High premiums. |
| Ideal for | Essential for almost everyone. | A good option for individuals looking for both investment and insurance. |
| Sum Assured | You can go for a sum which is about 15 to 20 times your annual income, to ensure sufficient coverage for your family. You get a higher sum assured for a given amount of premium. | If you opt for a higher sum assured, you will have to pay much higher premiums as compared to term plans, that can disrupt your budget. |
| Maturity Benefit | Not available with term plans except for the Term Plans with Return of Premium. | Available at the end of the policy term. |
| Loan Against Policy | You cannot apply for a loan against this policy. | You can get a loan against this policy when the policy has achieved the surrender value. |
| Liquidity | Term insurance does not offer any liquidity except for some specific plans that offer return of premium. Your nominee can only receive sum assured after your death. | In terms of liquidity, you can either take a loan against your policy or, in extreme financial emergencies, can also surrender the policy to withdraw your investment as per the terms and conditions of your policy. |
| Payout Options | You can customise the payout in small instalments to maintain a regular inflow of cash. | You can receive the entire money on maturity of the policy, or your nominee can receive it on your untimely demise. |
While you must know the difference between endowment plan and term plan, there are certain other factors that you must consider to make the right choice.
Things to Consider Before Deciding Between Term Insurance and Endowment Policy
1. Financial Goals
You must fix your financial goals for purchasing this policy. If you are only looking for financial coverage, then term insurance can be a reliable option. However, if you want both insurance and investment, an endowment plan would be the perfect choice.2. Affordability
The premiums of endowment policies are comparatively costlier than those of term insurance policies. So, you must take into consideration your current financial status and your monthly budget. This will prevent additional burden, and you can pay your insurance premiums on time.3. Benefits Available
The term insurance policy is associated with tax benefit and death benefit that aids you in saving more on taxes. However, in the case of an endowment policy, you can also get maturity benefits so that you save more.4. Liquidity of Policy
In case of a term insurance policy, you cannot make withdrawals. Your nominee will receive the sum assured in case of your demise within the policy period. On the contrary, in case of endowment policies, if you are in a financial emergency, you can get a loan against your policy or also surrender your policy as per the terms and conditions.
It is imperative that you select the right plan for your financial needs so that you can gain all the benefits that you expect from it. So, knowing the differences between term plan vs endowment plan will help you research various policies on offer from different financial institutions and then pick one that is most suitable for you.
Frequently Asked Questions
What Are the Advantages of a Term Insurance Policy?
The advantages of a term insurance policy are as follows:
Substantial coverage at affordable premiums.
Multiple payout options for death benefits.
Income tax benefits on premiums and payouts.
Availability of riders.
What Are the Disadvantages of a Term Insurance Policy?
Below are some disadvantages of term insurance policy:
You cannot withdraw money in case of emergencies.
It will not help you in wealth creation.
You cannot use the money to meet specific financial goals.
What are the Advantages of an Endowment Insurance Policy?
The advantages of an endowment policy are as follows:
It is a low-risk investment and provides assured returns.
You can avail tax benefits, maturity benefits and death benefits.
Helps in building a savings fund to meet future goals.
What are the Disadvantages of an Endowment Insurance Policy?
Below are some disadvantages of term insurance policy:
Expensive policy premiums.
Lower returns as compared to other pure investment options.
Lower cash surrender values in case of surrender.
It can be complex at times.
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Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
