Term Insurance vs. Endowment Plans – Know The Difference
The Coronavirus (COVID-19) pandemic has created havoc around the globe. It has hampered the finances and well being of the people drastically. People have started understanding the importance of having the right health and life insurance plans. Safeguarding the family’s financial future is essential, as life is uncertain.
In such a case buying the appropriate insurance policy is the need of the hour. Many people are hesitant about investing their hard-earned money in term insurance or endowment plans. Let us understand the difference between the two and ascertain which plan can be the best as per your needs.
Both term insurance plans and endowment plans are life insurance policies, but they have different features. If you are wondering what is term insurance, then read on the following to ease out your confusion.
A term plan is a simple and pure form of life insurance that can safeguard your family’s financial future if something unfortunate happens to you during the policy’s tenure. A term life insurance only offers only life coverage for a specific duration and does not provide any maturity benefits. Endowment plans provide both death and maturity benefits.
Differentiating factors between term insurance and endowment plans
Here are a few aspects based on which we have done a comparison between term insurance and endowment plans:
- Insurance vs. Investment
Term plans are ideal for people who are looking for pure protection, whereas endowment plans are suitable for those who are in search of a combination of protection and savings. In the case of term insurance, the insurer will hand over the death benefits to the nominee of the policy if the policyholder dies within the policy’s tenure. However, in the case of an online term plan, you need not get any maturity benefits if you outlive the tenure of the policy provided unless you have invested in a term plan with a return of premium. An endowment plan offers the dual features of insurance and investment. Here, you can build a financial corpus that can be helpful to plan your future life goals.
The term insurance premium is quite low when compared to endowment plans. It is because a traditional term insurance policy does not offer any returns or bonuses on maturity. Here, the life coverage is provided for a specific tenure, so the premium is cost-effective. On the other hand, endowment plans offer loyalty additions and maturity benefits besides providing life coverage. Therefore, such a plan comes at a costly premium.
- Sum assured
The sum assured can determine your family’s financial security, especially if you are no longer around. One of the best benefits of buying an online term plan is that you receive a high sum assured at an affordable premium. Conversely, in an endowment plan, the sum assured is relatively low when compared to a term plan. Here, you are getting maturity benefits as well; therefore, the sum assured is considerably low.
In term insurance plans, the policyholder can predetermine the payout of the death benefits to the nominee of the policy. Term plans offer various payment options; you can either opt for a one-time lump sum payout or opt for equal installments. You can even opt for a combination of both. Whereas in endowment plans, the nominee of the policy will receive a lump sum on the policyholder’s death within the tenure of the policy. In these plans, the policyholder can receive a maturity benefit on survival after the policy period ends.
Now, when you know the difference between term vs. endowment plans, it is time to select the one that suits your requirements. Both plans have their pros and cons; here, you will have to ascertain your financial goals and consider which plan is best for your needs. If you are looking for a high sum assured, then you can consider investing in a term plan. However, if you want to reap the benefits of insurance and savings, you may opt for an endowment plan.