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Published On: Wed, Jun 6th, 2018

What to choose: Term Insurance or Endowment Policy?

Endowment Policy and Term Insurance Plan both are the types of life insurance policy. In term insurance policy, the family or nominee of the insured receives the death benefit in case of the sudden death of the insured. While on the other hand, in an endowment policy the sum assured is paid either on the death of the insured or at the time of the maturity. In term insurance, you only get the death benefit. While an endowment policy covers the risk of your life and also gives you an investment option. The amount that is invested in endowment policy can be used for the further education of the child, retirement funds, wedding of the child and more.

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A lot of people have this confusion in mind that which is a better option either term insurance plan or endowment policy. Both the types of life plans provide various tax benefits and life coverage. But still, there are some differences between the two. Let’s take a look at the differences that a term insurance plan and endowment policy have so that we can understand as per our requirement which one is the best type of insurance policy for you. The following are the differences between the two that we should know:

Premium amount: Since an endowment policy provides you dual benefits of investment and insurance. So, the premium amount that is charged in the endowment policies are higher than the premium amount of term insurance plans. That is why you must have noticed that the agents prefer to sell you an endowment policy more than the term plan. As for selling an endowment policy, they get higher profits. In order to get the benefit of riders, you have to pay an additional amount because of which also the premium amount increases. If you can pay the higher premium, then you are good to go with the endowment policy.

Benefits: In a term insurance policy, you only get the coverage for life. While an endowment policy, helps you to get the coverage for life and also make you save for the future. This way an endowment plan is the combination of insurance and investment. So, if you only want the coverage for life then you should opt for a term insurance plan. On the other hand, if you want both the options insurance and investment then you should choose the option of an endowment policy.

Riders: Both the life insurance options, term insurance policy and endowment policy have a lot of riders or additional feature. You can get these features attached to your policy by paying an extra amount. Some types of riders are only available with the term plan and some are available only with the endowment plan. And there are some riders that are common in both the types of life plans. Hospital cash rider, critical illness rider, premium waiver rider, accidental death benefit rider and more are some of the riders that are available in both term insurance plan and endowment plan. You can choose the type of life plan as per your requirement of the additional features.

Sum assured: In an endowment policy if you want to choose a higher sum assured then you will have to pay a higher premium also. But this is different with a term insurance plan. In term insurance plan, you are allowed to choose the sum assured between Rs. 10 lakh – Rs. 20 crore, as per your annual income. In the term plan, the premium amount remains same. In term plan, a benefit is only provided to the nominees or dependents of insured if the insured dies before the maturity. While in endowment plan, the benefit is also provided at the time of the maturity if the insured survives until the maturity of the policy.

So if we summarise all the points that we have discussed, the result is:

  • The premium amount is higher in the endowment policy than the term insurance policy as in the endowment policy an individual enjoys dual benefits of investment and insurance.
  • An endowment plan provides you the two benefits including insurance and investment. While in term play, you only get the benefit of insurance.
  • The additional benefits or riders vary in term insurance plan and endowment policy. But still, there are some riders including hospital cash rider, critical illness rider, premium waiver rider, accidental death benefit rider and more that you will generally in both term plan and endowment plan.
  • In endowment plan, the amount premium increases as you choose higher sum assured; which is not the case with a term insurance plan.

There are some of the differences between the term plan and endowment plan. On the basis of these differences, you can understand how both the types of life insurance plan are different. These differences will help you to choose one from term insurance plan and endowment policy.

Conclusion:

Term insurance policy and endowment policy both are the products of life insurance. Both the products provide the cover for life. A lot of tax benefits are available in both the types of plans. But still, there are a lot of differences that we have discussed. A term insurance policy provides the life insurance coverage. While on the other hand, an endowment policy acts as a combination of both investment and insurance. In term plan, the family of the insured receives the benefit in case of earlier death of the insured before the policy period. While in an endowment policy the benefit is paid at the time of the death of the insured or maturity. In endowment plan, the sum assured is also paid at the time of the maturity when the insured survives till the maturity period. No matter which type of plan you choose, you should do a lot of research before selecting any plan. When you do a lot of research and comparison then you are able to select the best plan as per your need and affordability.

Author: Pankaj Deb

About the Author

- Outside contributors to the Dispatch are always welcome to offer their unique voices, contradictory opinions or presentation of information not included on the site.

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