Both term insurance as well as endowment plan offers a life cover. However, there are core differences between the two, they both serve different insurance needs. In this article we list the differences between term insurance and endowment insurance. Take a look, understand the differences and the needs they fulfil based on which you can take a decision.
Here are the main points of difference between the two:
A term insurance plan is a purest form of insurance. The sole purpose of a term plan is to provide financial security to the dependents of the policyholder. It offers a pure life cover. It is a simple life insurance plan that pays a sum assured to the nominee if the policyholder dies within the policy period. If he outlives the term, there is no maturity benefit.
An endowment plan offers a life cover as well as a savings option. If you die, your nominee gets the death benefit. If you outlive the policy period, you get a maturity benefit. An endowment plan provides guaranteed benefits on both death and maturity.
Since a term plan doesn’t offer any return on the premium you pay, it is less expensive. You just pay for a life cover.
Endowment plan provides a maturity benefit, along with the dividends you earn. This adds additional features to an endowment plan, making it more expensive than a term plan
The sum assured in a term insurance plan is close to 20 times your annual salary. The sum assured is therefore among the highest in term insurance.
The sum assured is definitely not as high in an endowment plan as a term insurance plan. You get a lower sum assured but you are also offered a maturity benefit and a return of the premium.
- Aim of cover:The two types of life insurance have two very different aims of cover.
Term life insurance aims at only providing financial help to your nominees if you die. The amount can work as an income replacement or can be used as to clear out any pending loans. It is absolutely essential to buy a term insurance plan if you have dependent family members.
The endowment plan aims to offer you a tool through which you can insure your life as well as invest your money.
Endowment policies have two options, one of which is with profit (where you receive regular bonuses), and other non-profits (where payment is made during outright maturity).
When you check the plans, you will know that there are many structured methods, which are essential for child education, pension, life security and many other aspects of your life.
Difference between Term Plan and Endowment plan
Term Plan – This is a security plan that does not provide any investment benefit. In case of death, you get life cover. Under such circumstances, the nominee will receive the amount.
Endowment plan – With this plan, you will get proper security, and you can also invest in these schemes. The biggest advantage, in the long run, you can use this money for your child’s fees, car or home purchase, for international trips, child marriage etc. You will also get cover of death, and in such cases, the amount will be paid to the nominee.
Term Plan – Security is valid only for certain conditions.
Endowment plan – Security and investment provided by this scheme.
Term Plan – Premium is less when compared to endowment plans when the amount is the same. These are the most economical and affordable plans available at a very affordable premium.
Endowment plan – The premiums for these plans are much higher than the term plan.
Term Plan – In case of an emergency in the term plan, withdrawal is not allowed.
Endowment plan – The biggest benefit with endowment plans is that you can withdraw the limited amount before the policy maturity.
Maximum sum assured
Term Plan – The term plan provides you with a wide range of sum insured or coverage amount. It provides coverage of 20 times your annual income ranging from Rs 10 lakh to 20 million.
Endowment plan – In the case of endowment plans, the maximum sum insured is limited as it increases the amount of premium to a large extent.
Term Plan – In case of death of the sole earning member of the house, members from other families can avail the loan for the payment of the loan, EMI, home expenses, education of children etc.
Endowment plan – These schemes are preferred over long-term benefits like child education, marriage, home payment, travel etc.
Verma brothers finally had an in-depth knowledge of the difference in the policies that persisted and they realised that if you are the only earning member of your family and you are looking for life insurance to protect your family after your death, then the term plan is best for you, because it offers high coverage at lower premiums. However, if you are looking for insurance and investment, then you can consider endowment or other investment options because these plans have higher premiums.