How are Endowment Plans Different from Term Insurance Plans?

Oct 16, 2017 | 11 months ago | Read Time: 2 minutes | By iKnowledge Team

Whether one should go for a term insurance or an endowment plan, most insurance seekers find it difficult to decide which insurance plan to buy. They often wonder what kind of life insurance would be the best for them. If you find yourself facing the same dilemma, we’re here to help you make the right decision. But before that, let’s discuss in detail on the several life insurance policies:

A life insurance policy can be of many types, such as:

  • Whole life insurance plans

  • Unit Linked Insurance Plans (ULIPs)

  • Money back plans

  • Term life insurance plans

  • Endowment plans

How are Endowment Plans Different from Term Insurance Plans?

 Here, we are going to understand what term insurance and endowment plans are:

A term plan is one that offers you coverage for a certain time frame, whereas an endowment policy, apart from acting as a life protection plan, also acts as an investment plan. It therefore has both, death benefit as well as maturity benefit, as compared to a term plan that has only death benefit.

Although a term policy and an endowment policy are similar in terms of the life protection they offer, they are also different from each other in more ways than one. We have put together a table below to help you understand these differences better and to help you make an informed decision on which plan to choose.

                Features Term Insurance Plan Endowment Plan

Coverage offered

A term insurance is a pure life insurance policy that offers life cover to your nominee in case of an untimely loss.  However, if you outlive your policy, no death benefit is received. An endowment insurance plan offers not just insurance but also acts as an investment tool for the future. If the policyholder passes away while the policy is still on, the nominee receives the death benefit. But, once the policy has reached maturity and its tenure is complete, you will receive a lump sum amount that has accumulated over a period of time through the premiums paid.

Cash value

You are unable to have access to the corpus of funds collected in your term insurance policy. This plan comes with a cash value feature. After a certain period of time, you are allowed to withdraw money from the funds collected in your policy. This is especially useful if you decide to liquidate your assets in times of an emergency. However, you need to keep in mind that withdrawing money can result in low returns on policy maturity.

 Premiums

The premiums charged are a lot lower. The premiums charged are on the steeper side.

Sum Assured

You pay a lower premium, while the returns you get are pretty high. The premiums paid in an endowment policy yield a lower sum assured.

Tax Exemption

As per Section 80C of the Income Tax Act, a term life insurance has a lower tax exemption benefit because the premiums paid are less. Owing to its expensive premiums, an endowment plan has a higher tax exemption as compared to a term insurance plan, as per Section 80C of the Income Tax Act.

 So, whether you prefer an endowment plan or a term life insurance policy, do make sure to select a policy that best suits your needs.


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