Deciding on endowment vs term insurance is confusing as both policies come under life insurance. To a certain extent, both plans serve the same purpose i.e., the death benefit. However, what your actual goal is, should be the deciding factor between both plans.
Nobody knows what the future holds for them. So, buying any type of life insurance can prove to be a boon in the necessary situation. But what matters more is the plan that helps you in fulfilling your desired goal.
Before knowing the difference between both policies, one must learn their meaning of them. This article will clear all your doubts regarding endowment vs term insurance.
What is the concept of endowment policy?
An endowment policy gives the dual benefit of being an insurance as well as an investment. This plan is active for a specific number of years. If unfortunately, the insured person expires during the policy tenure, then the assured sum is given to the nominee. On the other hand, if the policyholder survives, then the assured sum is given to that person.
This plan can be used for a future goal because, upon survival, the lump sum is provided to an insured. So, an endowment policy is a financial security that can be turned into a saving.
An endowment plan is also a widely purchased plan because it can be seen as a long-term investment. The policy is divided into different types. You can choose below the type of endowment policy that suits you the best.
- Full/With Profit Endowment – In this plan, the sum assured at the beginning of the policy as the death benefit is given to the insured person. The final payout is higher than the assured sum because it comes with additional bonuses.
- Unit Linked Endowment Plan (ULIP) – Under this policy, the premium paid towards the policy is divided into life insurance and investment. The insured person can choose the investment fund on which he/she wants the return.
- Low-Cost Endowment – This policy serves as a future investment because it is used to accumulate a fund for a specific goal example, repayment of a loan. Also, it has low premiums and an assured sum.
- Non-Profit Endowment – Here, the assured sum is given on maturity or as a death beneficiary to the nominee. The assured sum remains the same without any additional benefits.
- Unitised With-Profit Endowment – This plan guarantees an assured sum as both maturity or death benefit with additional bonuses. The insured person buys a unit in the market to receive potential returns.
What is the concept of term insurance?
Term insurance is a plan in which financial support is provided to the family of the policyholder after their demise. There is a fixed period for which term insurance is active and the amount is payable. In case the insured person expires amidst that fixed time, the promised sum is given to the nominee. However, if they survive the fixed time, no benefit is given to them.
In simple words, the company pays the assured sum to the insured person’s family if he expires during the term insurance period.
Term insurance is a very affordable and widely purchased plan. To avail of the benefits of the insurance, you must keep on paying the premiums regularly. Know the different types of term insurance below–
- Basic/ level Term Plan – This is a basic form of term insurance that gives death benefits to the nominee. It is active for a fixed tenure and the assured sum remains the same.
- Return of Premium (TROP) – Under this plan, upon your survival after the plan expires, you get the premium returns.
- Term Plans with Riders – You can riders like critical illness cover, accidental death cover, etc in your basic term plan.
- Convertible Term Plans – By paying extra premiums, this plan can be changed into other plans like endowment or whole life insurance.
- Increasing Term Plan – Here, you can increase the assured sum by paying some higher premiums every year.
- Decreasing Term Plan – The premiums you pay are the same but a certain percentage is deducted from the promised sum.
Read More: Term Insurance vs Life Insurance
Endowment vs term insurance
After knowing both policies, you must have made a preference. But the final decision should be made after judging both the plans on different aspects. Let’s compare endowment vs term insurance on different parameters, through the below table.
|Parameters||Endowment policy||Term insurance|
|Policy Coverage||This policy covers the risk of uncertain death of an insured as well as serves as an investment upon their survival.||This plan in its basic form only covers the uncertain death of an insured and provides an assured sum to the nominee.|
|Necessity||An endowment policy is important to have an investment for a specific goal along with life cover.||Term insurance is very important for everyone. It is confirmed financial support in their absence to the family.|
|Premium||It has a higher premium to gain higher insurance coverage.||It has affordable premiums and offers higher insurance coverage.|
|Investment||It offers maturity benefits. Hence, can be called an investment.||It only offers a death benefit and no maturity benefit. So, is not an investment.|
|Maturity Benefit||In this plan, the maturity benefit is given when the policy period is completed.||In this plan, typically no maturity benefit is given.|
|Rider||Here, riders like accidental death cover, critical illness cover, disability, hospital expense benefits, etc.||You can add riders such as accidental death benefits, income return benefits, return of premiums, critical illness cover, etc.|
|Payout mode||The payout is given in lump sum, be it for insurance or on maturity.||The payout is given in lump sum or monthly installments.|
|Tax Benefit||You get tax exemption on policy premiums and death or maturity benefit of the plan.||You can avail of a tax deduction on policy premiums. The death benefits are tax-free and on critical illness coverage, you can claim additional deductions.|
|Liquidity||You have an option of partial withdrawal on the assured sum.||You don’t have any option of withdrawal.|
|Objective||To increase wealth over time and also want an insurance plan.||To provide financial stability to the family in their absence.|
To sum up everything, both policies provide a death benefit to the policyholder’s family. However, people who are looking for life insurance plus an investment plan should go with an endowment policy. In the end, in endowment vs term insurance, you must select the plan that goes well with your objective.
We hope that after reading this article on Endowment vs Term insurance, you are now more confident in making an informed decision on which one is the right fit for your needs. For more information, please don’t hesitate to contact the Rwealth team.