Are you contemplating whether an Endowment or Term Insurance Policy is better? People opt for an endowment policy or term insurance policy for various reasons. Before deciding, it's crucial to carefully note the distinctions between the two.
Term insurance is a straightforward and comparatively affordable option offering protection for a specified duration with the lowest premiums available. You can select term lengths of up to 35 years with constant fixed payments. In the event of the policyholder's untimely death, the dependents receive the benefits.
Additionally, you can include additional riders, such as premium waivers, accidental death insurance, and others, alongside the policy. On the other hand, endowment insurance is a common type of life insurance plan that combines investment and insurance features.
It is similar to a unit-linked insurance plan or ULIP. Under this plan, you make regular payments for a specific period, and upon policy maturity, at the end of the term, you receive a lump sum amount. This payment is made only if the insured person survives the policy's duration.
To make an informed decision, it is important to thoroughly compare these two types of plans. Here is a guide:
- Premium Amounts – An endowment policy naturally has higher premium rates compared to term insurance plans, as it provides maturity benefits to the policyholder. Additionally, endowment policies come with add-ons that increase the prices. On the other hand, term insurance plans do not require any investments and solely protect the policyholder's life. The premiums are comparatively lower and need to be paid regularly, similar to endowment plans.
- Sum Assured – Term insurance offers a guaranteed sum assured to the dependents of the policyholder in the event of their sudden death or when the policy reaches its maturity. The assured amount is higher than the total sum assured in an endowment policy. The customer needs to pay a higher premium to obtain higher coverage (as a portion of the policy is allocated to investments).
- Death & Maturity Benefits – Policyholders typically receive the sum assured along with a bonus if they survive until the expiration date of their endowment policies. Term insurance plans also offer their own maturity benefits; however, beneficiaries only receive death benefits. Endowment policies provide both maturity and death benefits.
- Insurance and Investment Aspects – One of the major differences between endowment and term insurance policies lies in the type of plan offered. Endowment policies combine investments with insurance to facilitate long-term savings. Term insurance, on the other hand, is a pure life coverage option without any investment add-ons. Term insurance does not facilitate long-term savings. Endowment policies provide life coverage and future savings that can help policyholders achieve various goals. Term insurance policies distribute death benefits to the dependents of the policyholders in the event of their untimely demise. Endowment policies offer the entire sum the customer pays and maturity benefits upon expiration. This is perhaps the most significant distinction between these plan types, sometimes tipping the scales in favour of endowment plans.
Which Should You Choose?
An endowment policy might be the right choice if you are seeking a combination of investments and insurance. However, one thing is clear from the outset – insurance coverage is a necessity without compromise. With an endowment plan, you obtain this coverage and the added benefit of building future savings through the investment component of your policy. This grants you a dual benefit where you receive the entire sum paid and maturity benefits upon the policy's expiration.
Term insurance, on the other hand, is a basic form life insurance plan that provides death benefits to the policyholder's dependents in the event of their untimely demise. It does not include any additional features or benefits.
Consulting an advisor or financial expert is advisable to make the right decision in this regard. Ensure that you carefully evaluate both types' pros and cons before deciding. An endowment plan's insurance coverage may be insufficient for your family, while a term insurance plan can provide ample funds to serve as the primary family income. Moreover, term insurance plans are more affordable with lower premiums. Hence, exercise caution when making your decision. Industry experts often recommend a combination of both types.
