Endowment Plan vs Term Plan: Difference Between Endowment and Term Insurance

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Which is Better Endowment Insurance Policy or Term Insurance Policy?

Have you been wondering about which is better Endowment Policy or Term Insurance Policy? People opt for an endowment policy on various grounds and the same goes for a term insurance policy. Note the differences carefully before taking a decision.

Endowment Insurance Policy vs. Term Insurance Policy – Which one to opt for? 

Should you go for an endowment plan or end up with term insurance instead? Term insurance is simple and comparatively affordable, offering safety for a certain duration with the lowest premiums in the market. You can choose tenures going up to 35 years with fixed payments that do not fluctuate over the years. The dependents get the benefit in case of sudden death of the policy holder.

You can also add other riders like premium waiver, accidental death insurance and others to the policy alongside. Endowment insurance is a common type of life insurance plan where you get both investment and insurance features. It is quite similar to a unit-linked insurance plan or ULIP. In this plan, you will keep paying money regularly for a specific period. You will get a lump sum amount upon the maturation of the policy at the closure of the period. It is paid only if the person insured survives the tenure of the policy.

Also Read: How Are Endowment Policy Premiums Determined?

You should choose only after thoroughly comparing the two kinds of plans for yourself. Here is a guide:

• Premium amounts– An endowment policy will naturally have higher premium rates as compared to term insurance plans since it will give maturity benefits to the policy holder. They also come with add-ons which raise prices upwards. Term insurance plans, on the other hand, does not require any investments and only safeguards the life of the policy holder. The premiums are comparatively low and payable regularly like endowment plans.
• Sum Assured– Term insurance offers a guaranteed sum assured to the dependents of the policy holder in case of the latter’s sudden death or the plan comes to a close. The amount assured is higher than the total sum assured for an endowment policy. For getting a higher coverage amount (since one part of the policy is earmarked for investments), the customer should pay a higher premium amount.
• Death & Maturity Benefits– Policy holders usually get the sum assured along with a bonus if they survive until the expiry date of their endowment policies. Term insurance plans also come with their own maturity benefits in turn, but beneficiaries only get the death benefits. The endowment policies offer both maturity and death benefits in this context.
• Insurance and Investment Aspects– One of the biggest differences between endowment and term insurance policies is the type of plan in question. The former fuse investments with insurance for helping ensure long-term savings. The latter is a pure life coverage oriented option without any such investment add-ons or points. Term insurance does not enable any savings for the long term. Endowment policies not only offer life coverage but also future savings that can help in meeting varied goals and objectives of policy holders. Term insurance policies provide for the distribution of death benefits to the dependents of policy holders in case of their untimely demise. Endowment policies offer the entire corpus paid by the customer along with maturity benefits when they expire. This is possibly the biggest difference between these types of plans and one that tilts the scales in favour of endowment plans at times.

Which one should you choose? 

An endowment policy may well be the right choice if you are seeking the right combination of investments and insurance. Of course, one thing is clear from the outset- insurance coverage is a must without any compromises. Hence, with an endowment plan, you will get this coverage and of course, you will get the benefits of building up your future savings through the investment component of your policy.

Know More: What is an Endowment Policy, and why should you get it?

This will give you a dual benefit and you will get back the whole sum you paid and maturity benefits upon the expiry of the policy. Term insurance is a basic form that ensures death benefits for the dependents of a policy holder in case of his or her untimely demise. There are no other add-ons or benefits. It is a pure form of insurance coverage. You should consult your advisor or a financial expert for taking the right decision in this regard. Make sure that you check out the pros and cons of both types before coming to a decision. Insurance coverage under an endowment plan may be insufficient for the family. This problem may on the other hand, be solved by a term insurance plan which offers enough money to serve as the primary income of the family. Simultaneously, they are cheaper than endowment policies with lower premiums. Hence, take the decision carefully. A mixture of the two type is often recommended by industry experts.

Also Read: Endowment Or ULIPs-Features and Benefits | What is an Endowment Policy? | Cost of an INR 50 Lakh Term Insurance Plan in India?