Life insurance is a valuable addition to your portfolio. It offers financial security against unfortunate events in life. It brings peace of mind, knowing that your family’s needs will be taken care of even in your absence. Financial advisors, therefore, recommend investing in a life insurance policy at the earliest.
With numerous types of life insurance policies available, choosing the right one may be a daunting experience. Endowment plans and term insurance are the two most popular types of insurance plans.
Endowment plans vs. Term Plans
The key is to understand the features and benefits of both types of plans and make a choice based on your needs and requirements. Before finalizing between endowment plans and term policies, you may analyze the following five differentiating factors between the two, and make a well-informed choice.
- Meaning
A term policy provides insurance cover for a certain number of years. Your loved ones receive the pre-determined sum assured upon an unfortunate event of death.
An endowment policy, on the other hand, offers dual benefits of life cover as well as the growth of the money invested. This means that part of the premium amount is used towards providing coverage and the balanced is used towards investments.
- Maturity benefits
A term plan, being a pure risk cover, does not provide any maturity benefits to the policyholder. It only offers the death benefit amount to the beneficiary in case of death during the policy term. Only in case, you opt for a ‘Term Return of Premium’ plan, you may enjoy maturity benefits in case you survive till the end of the policy term.
Endowment plans, on the other hand, come with maturity benefits. At the end of the term, you are entitled to receive the corpus that you have collected during the tenure of the policy. Therefore, you may fulfill your life goals such as planning for retirement, making a down payment for a new home, meeting wedding expenses, or funding your child’s further education, among others.
- Premium rates
It is a known fact that premium rates for term policies are very low. For the same sum assured, the premium rate for an endowment policy is higher. For example, a term policy of INR 1 crore may attract a lower premium amount, say INR 8,500 per annum for a period of 30 years. For the same sum assured and policy term, you may have to pay a higher sum, say INR 1 lakh per annum towards an endowment plan.
- Liquidity
Term policies do not have any cash value and hence do not provide liquidity. However, you may enjoy the benefit of liquidity under an endowment plan. In an event of a dire emergency, you may withdraw up to a certain limit of the accumulated corpus. It is important to note that withdrawal results in a lower corpus amount, thereby offering lower returns on maturity.
- Ease of access
You may buy an online term plan through the insurer’s website. The insurer does not mandate you to undergo a medical test. The process of applying for an endowment plan, on the other hand, is not so simple. You may have to undergo a health assessment test and the policy will be issued thereafter.
Both endowment plans and term policies come with varied features and benefits. You may compare between the two options and choose the one that meets your coverage needs.
