Financial security for your family comes with tax savings for you! ✓Buy a Term Plan & save up to ₹46,800* on tax | ✓₹1 Cr. Life Cover at just ₹23*/day!

01 Nov 2021
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Financial planning needs to begin at an early stage in life. It disciplines you into saving and building a secure financial future. However, you need to find the correct balance between insurance and investment when managing your finances.

Securing the future of your loved ones is the topmost priority in financial planning. Hence, it is wise to invest in a life insurance product that helps you achieve this security. Two policies that immediately come to mind when talking about future finances are term insurance and endowment plans. However, there is a difference between term plan and endowment plan. In this article, we will be discussing in brief about term plan vs endowment plan.

About Term Insurance Plan

A term insurance plan is the most affordable life insurance product available in the market. The policy offers a death benefit to the beneficiaries in case of your sudden death during the policy tenure. In fact, term plans enable you to choose a high sum assured at low premiums. Moreover, you can enhance the coverage of your term insurance with rider benefits. Overall, the plan provides maximum benefits at nominal rates.

About Endowment Plan

An endowment plan is a widely popular life insurance product in India, mainly because of the twin benefits it offers. Much like Unit-Linked Insurance Plans (ULIPs), endowment plans also provide the liberty of enjoying the perks of insurance plus investment. But ULIPs and endowment plans are different from each other in several ways.

Difference between Term Plan and Endowment Plan

The following table will help you gain perspective on the difference between term plan and endowment plan:

 

Term Insurance Plan

Endowment Insurance Plan

Type of Plan

Term insurance is solely a risk coverage plan that protects the financial future of your loved ones in your absence.

Endowment plans are a mixture of both insurance and investment..

It Is Ideal For?

The policy is ideal for individuals who want to financially secure their families.

The policy is ideal for people who are looking to build their wealth over time along with adequate insurance protection.

Premiums Charged

Term insurance is the most affordable life insurance product available in the market.

So, you can avail term insurance with a high sum assured at a nominal premium.

Endowments plans tend to have a slightly higher premium compared to term insurance plans in India.

Sum Assured

You can select a sum assured amount that is up to 15-20 times your annual income at a nominal price.

The amount can range between ₹10 lakh and ₹20 crores for term plans

For endowment plans, choosing a high sum assured would mean a higher premium as it offers a life cover and a savings component.

Rider Benefits

You can enhance the coverage of your term insurance plan with rider benefits such as critical illness cover, accidental death benefits, the return of premium benefit, etc.

Similar to term insurance plans, even endowment plans offer additional covers such as critical illness cover, accidental death benefit cover, waiver of premium cover, etc.

Maturity Benefits

Ideally, a basic term insurance plan does not offer any maturity benefits.

But if you opt for a term plan with return of premium, you will receive the total premiums paid towards the policy.

With this facility, the insurer is liable to repay the premiums if you outlive the policy tenure. The amount received acts as a survival benefit.

A basic endowment plan provides a maturity benefit at the end of the policy tenor.

Death Benefits

Term insurance provides a death benefit to the beneficiary in the event of your premature death.

Since the sum assured in term insurance is high, the amount received as the death benefit is said to be more than sufficient to cover the financial needs of your family.

You receive a death benefit in endowment plans as well. However, the sum assured may or may not be sufficient to cover the financial needs of your loved ones.

Tax benefits

The premiums paid toward term insurance can be claimed for tax deductions under Section 80C of the old Income Tax regime.

Also, the maturity or death benefit received are tax-free under Section 10(10D) of the Income Tax Act, 1961.

If opted for critical illness benefit, an additional amount can be claimed for deductions under Section 80D.

The premiums paid toward endowment can be claimed for tax deductions under Section 80C of the old Income Tax regime.

The maturity or death benefits received are tax-free under Section 10(10D) of the Income Tax Act, 1961.

 

Liquidity

Term insurance does not offer any liquidity.

Endowment plans allow partial withdrawal of the sum assured amount in case of financial emergencies.

 

What to Choose Between Term Insurance Plan Vs Endowment Plan?

There are plenty of differences between term insurance and endowment plans and both these insurance instruments have certain advantages over the other. You need to know the difference between term and endowment policy and consider a few things before you decide which policy to purchase and it includes:

  • Your current financial situation

  • Your expenses

  • Your future financial objectives

  • Your budget

Once you know what you are aiming towards, it becomes easier to align these objectives with your insurance and investment plans. Besides this, also compare factors such as premiums charged, coverage of the policy, exclusions, claim settlement process, etc. All this will encourage you to choose the right insurance plan between term vs endowment plan to fulfil your needs.

Other Types of Life Insurance Plans

1. Unit-Linked Insurance Plans

These have three benefits, savings + investment + tax savings. A part of a ULIP is invested in funds as per your risk appetite and another part goes towards insurance. Know more about the best ULIP plans to invest for lucrative returns on our platform now!

2. Whole Life Policy

As the name suggests, this policy lasts for the policy holder’s entire lifetime. Premiums are to be paid continuously for a lifetime and there is a payout only when the policyholder passes away.

3. Money-Back Policy

This is another kind of endowment plan. There are regular part payouts during the policy term. If the policyholder survives for the entire term, they get the balance of the sum assured upon maturity, and the entire sum assured upon death.

Conclusion

After understanding the difference between term and endowment policy, it all boils down to your family’s financial situation. The major difference between an endowment policy and term policy is that if you are the sole or major provider for your family, a term insurance plan is for you. It shall promise your family a financial backup that will sustain them for a long period, and that too without putting a large premium burden upon your salary. Estimate the amount you would have to pay with our term insurance calculator now!

But in case there are other earning members in your family and you can afford a higher premium, you may consider an endowment plan. It shall provide you with additional security when you grow older while making sure your dependents are financially protected in your absence.

FAQs on Term Insurance Plan vs Endowment Plan

  • ✔️Which is better term insurance or an endowment plan?

    Both term insurance and endowment insurance plans are beneficial for individuals looking to safeguard their dependents with a death benefit. But purchasing one of the two depends on your insurance needs and long term goals. If providing a financial backup to your family is the goal, then term insurance is suitable. However, if you also want to create wealth for the future, then you can choose endowment insurance vs term insurance.

  • ✔️What is the difference between term insurance and endowment policy?

    The basic difference between term insurance plans and pure endowment insurance is that term insurance offers pure life cover without any maturity benefit. On the other hand, endowment insurance provides a pure risk cover along with a savings component to secure wealth for the long term.

  • ✔️Is it good to buy endowment insurance plans?

    Yes. Endowment insurance is a good choice when it comes to opting for a life insurance policy. However, make sure you choose a sufficient sum assured amount to cover your dependents.

  • ✔️Can I purchase term insurance on Finserv MARKETS?

    Yes. You can purchase term insurance on our platform or use our insurance app for ease and convenience.

  • ✔️How can I buy term insurance online?

    To buy term insurance online on Finserv MARKETS, you can use the procedure given below:

    • Go to the ‘Term Insurance’ section on Finserv MARKETS

    • Fill in the necessary details in the application form

    • Choose a suitable sum assured amount and add rider benefits

    • Review the policy terms

    • Pay the premium

    • Your term insurance policy will be issued soon!