Term Life Insurance vs Endowment Plans: Which one Should I Opt for?
Whether one should go for term life insurance or opt for an endowment plan is a common dilemma everyone faces before choosing a life insurance plan. Before you make a purchase, you must know the difference between the two. With the proper understanding of these terms and their differences, you will be able to choose one, based on your specific financial needs.
What is Term Insurance?
Term insurance is a type of life insurance that offers you pure life cover for a specific number of years in return for a premium you pay to the insurance company. During the term of the policy, if the insured dies, the family gets a pre-determined lump sum amount as a death benefit.
Generally, term insurance plans do not have any maturity or survival benefits. However, term plans with return of premium (TROP) plans pay the total premiums paid as maturity/survival benefit.
What is an Endowment Plan?
An endowment plan is a type of investment insurance that offers dual benefits of insurance (life cover) and investment (wealth creation). With an endowment plan, you get protection in times of crisis as well as the growth of the money invested. The life cover which you get is called the sum assured amount of the endowment policy.
Difference between Term Insurance and Endowment Plan
|Term Insurance||Endowment Plans|
|Term insurance is a type of risk cover instrument purchased to secure us against the uncertainties of life.||An Endowment Plan is a combined product which consists of both insurance and investment.|
|It is a pure life cover essential for covering the life of the insured.||It is an investment tool for users who want to enhance their funds while availing the benefits of insurance protection too.|
|An important offering for those who have dependent family members.||A product which can be chosen as per the investment preference of the customer.|
|There are no maturity benefits associated with term insurance plans.||Maturity benefits associated with endowment plans are paid at the end of the policy period.|
|The sum assured in term insurance is generally 20 times that of the annual income of the policyholder.||The sum assured received after maturity is not huge but sufficient for basic investment.|
|In term insurance, only the death benefit is offered to the family of the policyholder.||The death benefit, as well as maturity benefits, are associated with endowment plans.|
Should You Opt for Term Insurance or an Endowment Plan?
Experts suggest that the need for insurance must not be confused with investment planning. Pure insurance plans, such as term insurance, have the edge over endowment plans. As pure term insurance plans do not provide any maturity benefits, the premiums which you pay for term insurance are much less as compared to endowment plans.
Endowment plans invest your money in various instruments and schemes such as the stock market due to which the movement of the investment industry determines their gains to a certain extent. Endowment plans are a viable option for people who require basic life cover, and a low-risk investment solution, all under a single plan.
For example, if you purchase an endowment policy and pay ₹10,000 as premium annually for 15 years, you can expect a cover of ₹3 lakhs, in addition to the bonus amount accumulated over a period of 15 years.
However, if you pay the same premium amount for the same period of 15 years in term insurance, you can expect to get minimum coverage of ₹35 lakhs – ₹50 lakhs.
It would be beneficial to opt for a policy term plan or term insurance since it offers monetary support, in your absence, to loved ones who are financially dependent on you. On the other hand, if you wish to build wealth over the years, you can opt for an endowment plan which could offer you benefits of insurance and investment.