Endowment Plans vs Term Plans: Understanding the difference

Dec 06, 2018 | 6 days ago | Read Time: 3 minutes | By iKnowledge Team

Endowment plans have a saving plus insurance component while term plans are pure insurance products with no savings element but a higher insurance coverage.

There is a wide variety of insurance schemes in the market today and triggers a sense of confusion in the buyer when he has to decide. Often, the dilemma lies between choosing an endowment policy or a term insurance plan. This is natural since not many insurance seekers know details about both the plans. Though both are traditional life insurance plans, they serve different purposes.

Let’s look at what the two plans offer and make a comparison.

1.The insurance vs investment component

There is a major difference between the nature of both the plans. While term insurance focuses on life cover and financial protection without any frills, an endowment plan on the other hand serves a dual purpose of insurance and investment. It allows you to build a financial corpus for the future.

In the case of a term plan, the nominees receive the guaranteed death benefit only if the insured policyholder passes away under unforeseen circumstances, while in an endowment plan, you receive a lump sum payment that you have built over time, once the policy term is over.

  1. Difference in Premium

If you’ve contacted several agents to ease your confusion in making a choice, you may have noticed their preference towards an endowment plan instead of a term policy. Not because there’s any issue with a term plan, but because they earn higher profits when they convince you for an endowment plan.

A term plan offers adequate life cover at a lower premium, while an endowment policy will set you back by a large amount and in case you add riders, the cost further increases. All in all, a term plan is much more affordable than an endowment plan.

    3.Sum Assured

When it comes to the sum assured, it generally depends on the plan you choose. In case of a term plan, you can choose your sum assured, which can range from Rs 10 lakh to Rs 20 crore basis your income. Ideally, it is advised to buy a cover up to 20 times of your annual income. Endowment plans, on the other hand, require you to pay larger sums of money to get a higher sum assured.

Additionally, when you buy a term plan, your insurance company will pay a lump sum amount only if the insured policyholder passes away during the tenure of the policy. In the case of an endowment policy, the death benefit is applicable in case of the insured policyholder’s demise, but if you outlive the policy term, you will receive the sum assured as well as a maturity benefit.

  1. Rider options

Both these plans offer multiple riders based on your requirements. One has to pay an additional amount to get these riders, but the benefits are many. There are some riders that come only with term policies, while some are exclusive to endowment plans. There are some that are common, which include the critical illness rider, accidental death rider and waive off premium rider, among others.

In fact, all the premiums you pay under a term plan are exempt from tax as per Section 80C, while the sum assured, and maturity benefit you receive are exempt under Section 10(10D).

Even though both the plans have their own advantages, term plans are more suitable since the premium rates are much lower as compared to the endowment plans and adequate life cover is provided. Since insurance is protection first and then investment or a tax-saving instrument, it is wise to look at financially securing your family first, since we are all aware of life’s uncertain ways.

Besides, even though both the plans offer sum assured to beneficiaries in case of the policyholder’s death, their purposes are different. Endowment plans are only beneficial for those who are looking at long-term savings, while term policies provide higher coverage and focus only on the insurance component.

Trusted insurance providers like Aegon Life offers term plans like iTerm, which provide cover for up to hundred years, so that your family is financially secure for their lifetime. Besides, you choose to pay your premiums monthly or annually. You can easily purchase these policies online and premiums are nominal even if you avail additional benefits. It also comes with a terminal illness benefit, wherein you get death cover benefits upon diagnosis plus your future premiums are also waived off.

Since the intrinsic nature of an insurance product to protect your loved ones, it is better not to mix it with investment. After all, family comes first!

II/Oct 2018/4514


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