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Term Insurance vs. Endowment Plan: Which One Suits You Best?

  3/13/23 7:06 AM

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In terms of life insurance, most people are aware that both term insurance, as well as endowment plans, offer a life cover. However, they both cater to different needs. While term plans fulfill the need for protection, endowment plans fulfill the need for savings. You will be able to choose the right plan for yourself once you identify the differences, the features, and your needs pertaining to each category of life insurance. These factors can help you arrive at the best term insurance policy or make a comparative analysis of term insurance vs an endowment plan.


 

What is Term Insurance?

term insurance plan offers a pure life cover to one’s family, wherein the family is protected against future financial risks in the event of the insured’s untimely demise during the policy term. The nominees receive the sum assured as a death benefit that helps them cover their financial requirements in times of need. Check out the new term plan from Edelweiss Tokio Life Insurance here

What is meant by Endowment Insurance?

An endowment plan offers the dual benefit of a life insurance cover as well as long-term savings. With the help of an endowment insurance plan, one can save a corpus for their future financial goals while protecting themselves and their family under a single plan.

Difference between Term Insurance and Endowment Insurance Plan

Metrics

Term Insurance

Endowment Insurance

Type of Plan

 

A term insurance plan is a simple and basic form of life insurance that offers pure life cover.

An endowment insurance plan provides a life insurance cover and the added benefit of savings.

Cover

 

A term insurance plan provides extensive life cover to the insured’s family, and they receive a death benefit if the insured passes away during the policy term.

An endowment plan is mainly a long-term savings plan that also provides a life cover to the insured and their family.

Premium

Term insurance premiums are very affordable yet offer a high sum assured.

Compared to term plans, endowment plans have a slightly higher premium cost.

Sum assured:

 

The sum assured of a term plan can be 15-20 times the amount of one’s annual income. Term plans can provide a sum assured as high as INR 20 crores.

Endowment plans come with a savings component, due to which the sum assured is not that high. One can opt for a higher sum assured with a higher premium.

Who is it for?

Term plans are for anyone who wants to secure the future of their family against financial risks.

Endowment plans are for those seeking life cover and long-term savings to fulfil their future financial goals.

Rider Benefits

Term insurance plans offer riders such as accidental death benefit, return of premium, critical illness cover, etc.

Endowment plans offer riders like accidental death benefit, critical illness cover and waiver of premium riders, etc.

Payout options

In term insurance, the sum assured can be flexibly paid out as a lump sum, monthly income, or a combination of both.

In endowment insurance, the sum assured is paid as a lump sum.

Tax Benefits

Term plan premiums, as well as the sum assured, are eligible for tax benefits under Section 80C and Section 10(10D), respectively, of the Income Tax Act.

Endowment plan premiums are eligible for tax benefits under Section 80C of the old tax regime. The sum assured is tax-exempt under Section 10 (10D).

Death Benefits

Term plans only offer a death benefit to the aggrieved family if the insured passes away during the policy term.

Endowment plans pay out the lumpsum death benefit to the beneficiaries if the insured passes away during the policy term.

Maturity Benefits

 

Pure term plans do not offer maturity benefits. But the return of premium term plans offers the total of all the premiums at the end of the policy term to the insured.

Endowment insurance plans offer maturity benefits as a lump sum, where the policyholder gets the benefits if they outlive the policy term.

Liquidity

Term plans do not offer liquidity, and the sum assured will only be paid out to the late policyholder’s family.

Endowment insurance plans enable partial fund withdrawals in case the need for funds arises.

Features of Edelweiss Tokio Life Insurance Term Plans

Edelweiss Tokio Life Insurance Term Plans like Zindagi Protect offer a host of features to help your family at all times:

  • Life Cover for your family’s security
  • Flexibility in choosing premium payment options
  • Avail of discounts on a higher sum assured
  • Get your spouse covered with the Better Half Benefit Option
  • Protect your future at affordable premiums
  • Flexible choice of riders to enhance your term plan

Features of Edelweiss Tokio Life Insurance Endowment Plans

Edelweiss Tokio Life Insurance Endowment Plans come with the following features to protect your family and accumulate wealth:

  • Enhanced life cover of up to 10 times of the single premium amount
  • Guaranteed amount on maturity to plan future goals
  • Choice to avail loan on your endowment insurance plan
  • Make all premium payments in one go with the Single Pay option
  • Maximum entry age of 70 years ensures protection even later in life
  • Choice of riders to enhance your endowment plan

Term Plan vs Endowment Plan: Which One is Better and which one should You Choose?

The choice between term plans and endowment plans can only depend on one’s requirements and expectations from the life insurance plan. Each of these insurance plans can only be a better option for one if they know how the policy will fulfil their needs.

For someone who needs only a pure life cover that will ensure financial security to their family, a term insurance policy will be a better selection over an endowment plan. This is because they can easily protect their family’s financial future at very affordable premiums and rest assured that, in their absence, their family will still be able to lead a comfortable life.

Additionally, as a young earning professional, one may choose a term plan since the first priority for most people is to protect their family’s future. A starting salary could be great for the low premiums of a term insurance plan while ensuring an extensive sum assured for your dear ones.

However, for many others, building a long-term savings corpus is just as important as protecting their family. For such people, endowment plans can be a good pick, even if it means having to pay a slightly higher premium to provide life cover and also save money. If someone has a long-term financial goal in mind which they cannot fulfil with their present income, an endowment plan can help them achieve this is through disciplined savings during the policy term. The guaranteed savings will be available to them on maturity and in case of their untimely demise, the same will be paid out to their family.

Other Types of Life Insurance

Apart from term insurance plans and endowment insurance plans, here are some of the other offerings you can choose from Edelweiss Tokio Life Insurance:

  • Unit-Linked Insurance Plan: ULIPs offer the combined benefit of market-linked investment, life cover and tax savings. While one part of the premium payment goes towards market-linked investment, the other part provides life insurance cover.
  • Savings Plans: This is a type of life insurance plans which assured returns on investments during the policy term and upon maturity. The predetermined sum assured is paid as a death benefit.
  • Retirement Plans: Savings plans such as guaranteed returns plans and income plans, and investment plans such as ULIPs can be a good choice when it comes to providing life insurance and creating a long-term savings fund for retirement years.
  • Child Insurance: It is easy to secure your child’s future with the help of a guaranteed returns plans, ULIPs and income plans as they help build a savings corpus and offer life insurance for securing the child’s future.

Conclusion

Making a choice between a term insurance plan and an endowment insurance plan is simple once you chalk out a financial plan that considers the needs of your family, your financial goals and the future financial security of your loved ones. The benefits offered by these insurance plans are designed such that your goals can be met in accordance with the plan you choose.

 

Aastha Mestry - Portfolio Manager 

An Author and a Full-Time Portfolio Manager, Aastha has 6 years of experience working in the Insurance Industry with businesses globally. With a profound interest in traveling, Aastha also loves to blog in her free time.

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