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Nowadays, having life insurance is a necessity. But one of the major concerns faced by every customer while choosing a life insurance plan is whether to buy a term insurance plan or an endowment plan. Both the plans are traditional insurance plans and offer comprehensive life cover along with tax benefits. However, some differences also exist in both plans.
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Let’s understand these differences:
Term Plans
Financial planning is very important at the early stages of life. It helps you to save and build a protected and a secured financial future for your family. However, knowing the correct balance between investment and insurance is crucial at the time of managing the finances. The topmost priority in financial planning is securing their families. Hence, it is a smart decision to invest in life insurance that helps you to be financially secured. In this article, we will be discussing if term insurance is better than an endowment plan? Two insurance policies instantly come into mind when thinking about the financial future goals are term insurance and endowment plans.
Term insurance is a pure financial protection plan that offers cover for a limited period. If the policyholder dies during the policy term, then he/she is entitled to receive the death benefit in terms of a pre-specified lump sum amount.
Note: Now that you know that what is term insurance plan you can easily buy a term plan for your loved ones.
Unlike term insurance, an endowment policy is a combination of insurance and investment, offering protection in financial emergencies. The offered life cover is called as sum assured amount of the endowment plans.
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Listed below are the points discussing the difference between term insurance and endowment plans:
A term insurance plan offers security from risks without any additional investments. Hence, the premium prices of the term insurance plan are low which are required to be paid by the policyholder at regular time intervals. Whereas, endowment plan has maturity benefits which relatively increase the premium prices. It also comes with an add-on that further makes the premiums costlier. The term insurance plans are more cost-effective and economical than the endowment plans.
Note: You can easily calculate the term plan premium by using the term insurance calculator online tool.
Sum assured is a pre-decided amount that the insurer agrees to pay to the policyholder or his/her nominee if an insured incident happens or at the end of the term plan. Assured can determine the sum assured amount at the time of purchasing the term insurance policies. The sum assured in the term insurance plan is higher than the sum assured of the endowment plan. This means that a policyholder is required to pay a high amount of premiums to receive more sum assured amount in an endowment plan.
In maturity benefit, the policyholder receives the decided sum assured amount along with the additional bonus, if the life assured survives till the expiry date of the endowment plan. Term plans do have maturity benefits but only have death benefits for beneficiaries. However, endowment plans offer both – Death and Maturity Benefit.
One of the major differences between a term and an endowment plan is the nature of the plan. A term plan is a pure life protection plan that provides no such add-ons cover, but endowment plans are a combination of insurance and investment that allows you to save for your future objectives. On the other hand, term insurance plans provide no options for long-time savings. Like, if you purchase a term insurance plan, the death benefits will be received by beneficiaries in case of your unfortunate death. In the endowment plan, you can get the complete corpus that you have paid overtime at the end of the policy.
In a term insurance plan, death benefits are provided to the beneficiaries in case of the policyholder’s untimely demise. The guaranteed sum amount is higher in term insurance and the received amount helps the family to meet their expenses. Endowment plans also offer death benefits but the sum assured amount not necessarily is adequate for completing financial requirements.
Riders are the additional features for which you will have to pay an extra premium if you want to buy them. Both plans, term and endowment plans offer riders. But certain riders are available only with the term insurance plans while some are only available with endowment plans. And both plans offer critical illness, accidental death rider, premium waiver, and hospital cash. All the life insurance plans offer tax benefits as per the prevailing laws of the Income Tax Act, 1961. Therefore, the exemptions on tax are higher in the case of endowment plans when compared to the term insurance plans.
Both plans have their disadvantages and advantages but the selection depends entirely on your requirements. In the below section, we are going to discuss whether a term insurance plan is a right buy or an endowment plan. Here’s a quick laydown:
As we have discussed above, the premium amounts are lower as compared to the endowment plans. It simply means, that if you buy a term plan of Rs.1 Cr cover, the premium amount of this cover will be lower than the premium amount you pay in the case of an endowment plan.
Endowment plans deduct the mortality amount and other charges and only return the amount that remains to the life assured at the time of maturity. Sometimes, the returns provided by the endowment plans are much lower than the total premium paid towards the entire policy.
Benefits of term insurance plan also includes death benefits, and on the other hand, endowment plans offer both maturity and death benefits. Thus, both term and endowment plans provide a sum assured amount to the beneficiaries in case of the policyholder’s demise during the policy time. Endowment plans are beneficial for savings purposes whereas term insurance plans are ideal for those who are looking out for higher coverages at low premium prices, thus provides financial protection to your family in case of your absence. Buying pure life insurance is a smart option when your foremost concern is your family’s protection.
When it comes to your family, their financial protection is your priority. Being a sole earning member of the family, a term insurance plan offers you a sufficiently large amount that can help his/her family for the long term. Term insurance plans are more economical and pocket-friendly than endowment plans. The selection of the right insurance plan depends entirely on your financial requirements and future objectives. Choose your plan smartly for a better tomorrow.
Note: Check out the best term insurance plan in India and choose one that suits your requirements.
˜Top 5 plans based on annualized premium for bookings made on https://www.policybazaar.com in the first 6 months of FY 24-25.
Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
+Rs. 487/month (Rs.16/day) is starting price for a 1 crore term life insurance for an 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 38 years of age.
Prices offered by the insurer are as per the approved insurance plans | #All savings and online discounts are provided by insurers as per IRDAI approved insurance plans | Standard Terms and Conditions Apply | **Tax Benefits are subject to changes in tax laws.| Policybazaar Insurance Brokers Private Limited
We will respond in the first instance within 30 minutes of the customers contacting us. 30-minute claim support service is for the purpose of giving reasonable assistance to the policyholder in pursuance of the claim. Settlement of claim (including cashless claim) is the responsibility of the insurer as per policy terms and conditions. The 30-minute claim support is subject to our operations not being impacted by a system failure or force majeure event or for reasons beyond our control. For further details, 24x7 Claims Support Helpline can be reached out at 1800-258-5881
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Policybazaar Insurance Brokers Private Limited | CIN: U74999HR2014PTC053454 | Registered Office - Plot No.119, Sector - 44, Gurgaon, Haryana – 122001 | Registration No. 742, Valid till 09/06/2027, License category- Composite Broker Visitors are hereby informed that their information submitted on the website may be shared with insurers. Product information is authentic and solely based on the information received from the insurers.
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+Rs. 820/month is starting price for a 2 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 38 years of age.
+Rs. 1,443/month is starting price for a 5 crore term life insurance for an (NRI) 18 year-old male, non-smoker, with no pre-existing diseases, cover upto 38 years of age.
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