Term Plan Vs Endowment Plans

Term Plans vs. Endowment plans: The Differences

A sturdy foundation for financial management requires smart decisions and risk assessments. Individuals mulling over providing a means of security to themselves and their families are often confused between a term plan and an endowment plan. While the primary objective of both these plans is the same, i.e. security, there are various other features which set them apart. 

A term plan is life insurance for a certain number of years. In case of the demise of the policyholder within this period, the beneficiaries are provided with a lump sum amount as a death benefit. They can use this to overcome monetary difficulties caused by the passing away of the policyholder. On the other hand, an endowment is a combination of investment and insurance with life cover and savings within the ambit of a single plan. 

Premiums

A term plan provides security from risks without additional investment. Thus, the premium for term life insurance is low, which has to be paid at regular intervals. Whereas, an endowment plan comes with maturity benefit, which makes the premium for such plans costlier. Besides, an endowment plan incorporates add-ons; and this further increases the premiums. Thus, a term plan has more affordable premiums than an endowment plan. 

Sum Assured

A sum assured is the total insurance amount payable if the event insured against takes place. In a term plan, the sum assured is higher than in an endowment plan. One needs to pay higher premiums to get a more substantial sum assured in an endowment plan

Death and Maturity benefits

If the policyholder survives till the expiry of the endowment policy, the policyholder receives the sum assured along with bonus, called maturity benefits. Term plans do not incorporate maturity benefits and only have death benefit for the beneficiaries. However, an endowment plan offers death benefit as well as maturity benefits. 

Security and Investment

The element of investment and insurance is the fundamental difference between a term plan and an endowment plan. Term insurance is purely a risk instrument meant for securing the loved ones from financial adversity. If the policyholder dies, the nominees can claim the death benefit, which can be further used to pay off the debts and avert bad loans in future. An endowment plan, on the other hand, has the dual components of insurance as well as savings. 

Financial goals or purpose

Term insurance is an essential security cover for individuals for effective financial planning. An endowment plan, with its savings-cum-security feature, is meant for individuals who are aiming for long term investments along with financial protection. Both these plans are essential for ensuring a smooth life for your dependents. While term plans provide better coverage, endowment plans also fulfil the goal of savings. Often, reinforced financial protection comes before savings, considering which term plans are better suited. Also, in terms of premium, a term plan is more affordable.

Both of the plans have their benefits. In terms of life coverage, risk protection and affordability, a term insurance plan trumps over endowment plan. However, in the case of investment and planning for the future, the endowment plans make more sense. Weigh your needs, goals, financial feasibility and accordingly choose the plan which fulfils your financial objectives.