Term Insurance Vs Endowment Policy

The very first dilemma people usually face when they seek out to buy an insurance policy is to choose between term insurance and endowment policy.

There are a lot of arguments made on either side but mostly blown out of proportion without putting context of fair comparison.

To begin with, it is important to draw the right parallels between these two options on the factors that mean most to you.

Here we are drawing a fair comparison between a term insurance policy and an endowment policy on the basis of value and purpose.

These differences will guide you to choose the right insurance policy for yourself amongst these two.

What is a Term Insurance Policy?

Term Insurance is a financial protection tool or risk protection program that covers a specific number of years.

During the policy term, if the policyholder dies, his or her family will be entitled to receive death benefits in the form of a pre-set amount.

What is an Endowment Policy?

Unlike term insurance, an endowment policy is more than just an insurance policy but also an investment instrument.

It offers both financial protection as risk coverage for a specific number of years along with simultaneous growth of money invested in the first place.

If the policyholder dies during the policy tenure, his or her family receives a death benefit.

But unlike term insurance, if the policyholder outlives the policy tenure, he or she will get the maturity benefit of the policy as a bonus amount.

Term Insurance Vs Endowment Policy

Premium

A term insurance plan offers security from the risks without any kind of additional investment.

And that’s why the premium of the term life insurance is low which further requires it to be paid at regular intervals.

However, the endowment plan comes with the maturity benefit and that’s why it has a costlier premium.

But you also have to recognize the higher potential value of the endowment plan as doubling down on insurer benefits with maturity as a bonus along with the sum assured.

Not to mention, the sum assured was given to the family in case of the insurer’s demise.

Also, whereas with term insurance, the premium is cheaper but with limited value, in the endowment plan, the costlier premium also gets justified due to the add-ons.

Insurance Vs Investment

One of the major differences between a Term insurance plan and an endowment plan is in the very nature of the plans.

While the Term insurance plan or policy is purely a life insurance policy particularly offering life cover, an endowment plan on the other side is more like a combination of both insurance and investment.

The focus of a term insurance plan is only and only to financially secure the family of the insurance holder with a particularly generous assured sum.

The endowment plan, on other hand, also allows you to save for your future. In the case of a term plan, there is clearly no savings, only risk coverage.

If you take a term insurance plan and in the case of your untimely unfortunate demise, your family will receive the sum assured amount.

Whereas with an endowment plan, you will be getting a fixed amount of your savings once the policy tenure is over.

An endowment plan is a perfect combination of insurance and investment and a high-value financial product.

Sum Assured Amount

The sum assured amount in the cases of these two different types of insurance plans is poles apart.

The thumb-rule of selecting the sum assured is one would need to buy a cover upto 20 times of their annual income for life insurance.

However, in the case of an endowment plan, you have to pay a large amount of money as a premium to get a higher sum assured.

For Example : 

 You can get a sum assured of around Rs. 16 Lakhs for a 30 year period when you pay Rs. 20,000 as an annual premium.

But if you choose the term insurance plan, paying the same annual premium would get you a sum assured of around Rs. 2 crores.

So in both of the cases, with your sudden untimely demise during the policy term, your family will get the respective sum assured as per the plan you select.

However, in the case of an endowment policy,  if you outlive the policy tenure, the insurance holder will be paid out with a particular sum assured along with maturity benefits.  

This is something not offered in the term insurance plan.

Maturity Benefits

In the case of an endowment plan, the policyholder, if survives till the expiry of the policy tenure, will receive the sum assured along with a bonus called maturity benefits.

However, with the term insurance plan, there are no maturity benefits but only the death benefits for the beneficiaries.

Endowment plans assure you of both death benefits as well as maturity benefits.

Value 

Premium rates are comparatively lower in the term insurance plan than in the endowment policy.

So the case usually made is, term insurance policies are more affordable than endowment policies.

It is in a way if you are more leaning towards going for only the risk coverage.

But since you are getting risk coverage and lifetime cover, both with an endowment, it is certainly more valuable.

In nutshell, Endowment plans offer savings as well as risk coverage making them more valuable than term insurance plans.

How Endowment Policy Is Better Than Term Insurance Policy For You?

It depends upon what you are primarily seeking as a financial product for you.

If you are looking for an affordable and long-term financial security only aiming to risk coverage, then a term insurance policy might be right for you.

However, the endowment policy is better as it consists of both risk cover and savings. You are getting maturity benefits as well as risk coverage before or until maturity.

Term insurance may seem affordable but an Endowment policy is more valuable and profitable.

Term insurance has a higher sum assured in low premium but an Endowment policy gives you security on two different fronts – saving and risk coverage.

An endowment policy is more of a two-dimension financial product acting predominantly as a smart investment with a long-term insurance promise.

Also, Term insurance has more rates of lapse as compared to the endowment policy.

It is because people tend to get lazy with paying for such long terms especially when they cannot see a direct return of investment coming their way.

Endowment policy does promise of that direct and assured return of investment, and in either case, whether the policyholder outlives the tenure or not.

Thus, an Endowment policy is better than term insurance in many ways