Do you want to save more and live a debt-free life? Then Insurance is a must as a part of your financial planning. Apart from helping you achieve your financial goals, it reassures peace of mind that your family will be protected even after your demise. But, the common dilemma we face today is to choose between a term plan and an endowment policy. As both insurance plans are ideal in their way, to select the right one, you must understand the fundamental differences between the two insurance products.
The distinct difference
A term plan differs from an endowment policy by definition. A term plan provides a death benefit in the way of a lump sum amount or monthly payments to the beneficiaries after your demise. On the other hand, an endowment plan, along with the death benefit, provides the sum assured in the form of the maturity benefit if you live beyond the maturity term. When you buy a term plan, your beneficiaries receive the sum assured after your demise; but an endowment policy will give them the sum assured as a death benefit or maturity benefit, whichever comes first.
The difference in cost
Term insurance plans are the cheapest form of life insurance and provide highest life coverage at the lowest premium rates. However, the premiums are slightly higher for endowment policies as it includes an investment component. If you aim to buy insurance only for life cover, you should buy a term plan. But, if you want to build your wealth and save more for the future and you don’t mind paying a little more for it, you can consider buying an endowment plan.
There is no maximum limit for the sum assured in a term plan. Generally, you can buy a term plan with a sum assured anywhere between 10 lakh to 20 crores at the lowest premium amount. For a term plan of 1 crore, your annual premium amount will be Rs. 3000 p.a. However, if you buy a 30-year endowment plan with a sum assured and guaranteed returns, similar to the above example, you will need to pay Rs. 10,000 p.m. Keep in mind that an endowment policy also includes a maturity benefit. Therefore, by investing more, you get more.
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Which plan is the right one for me?
It all comes down to your long-term financial plans and the amount you can afford a premium on a monthly basis. You can add riders to both policies to customize it according to your lifestyle, and both of them provide tax benefits under section 80C and 10(10D). If you are the only breadwinner of the family with financial dependents, opt for a term plan. However, if you’re looking to multiply your wealth and and still wish to be protected through life cover, go for an endowment policy.
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