"Spending a whole day looking for insurance is fun," said nobody, EVER!
"Spending a whole day looking for insurance is fun," said nobody, EVER!
  • Term Insurance vs Endowment Policy

    In today's fast-paced world, there is no certainty with regards to what an individual might have to face in future. Various financial tools in the market take care of this aspect by offering investment and saving avenues to customers so that even in the face of adverse events, financial adversity does not become a challenge.

    What is Term Insurance?

    Term insurance is a financial protection tool that offers protection cover for a specific number of years. During this term, if the policyholder dies, then his family is entitled to receiving a death benefit in terms of a pre-determined lump-sum amount.

    What is an Endowment Policy?

    An endowment policy, unlike term insurance is an insurance cum investment instrument that offers both protection in times of crisis and simultaneous growth of money invested. The life cover offered is known as the sum assured of the endowment policy.

    Difference Between Term Insurance and Endowment Policy

    Term Insurance

    Endowment Policy

    A pure risk cover instrument for uncertainties of life

    A combination product of both insurance plus investment

    An absolute must financial tool for everyone

    An investment tool for customers who wish to grow their money while availing protection too

    A necessary offering for those who have dependents

    A product that can be chosen as per preference of customer

    No maturity benefit is associated with term insurance plans

    Maturity benefit is associated with endowment policy. This benefit is paid at the end of the policy period

    Sum assured as death benefit is mostly 20 times the annual income of the policyholder

    Sum assured as maturity benefit is not great but sufficient to be used as good investment option

    Only death benefit is offered by term insurance

    Death and maturity benefit both are associated with endowment plans

    Which One is Better, Term Insurance or Endowment Plan?

    The need for insurance should not be mixed with the goal to invest and grow your money. Hence, insurance instruments and endowment plans should be availed by an individual depending upon his/her financial goals. Financial experts are of the view that insurance should not be mixed with any other financial goal. Hence, pure insurance products like term insurance have an edge over endowment plans.

    Endowment plans invest your money in the stock market and various other instruments and hence their returns are tied to the movement of the market. This means that there are no guaranteed returns for endowment plans and as such there may be times when an endowment plan offers returns way below than expectations. Also, the premiums for endowment plans are mostly higher than those which are paid towards term insurance. Experts suggest not to mix insurance and investment so that returns reaped are effectively more.

    Endowment plans invest your money in other instruments and hence charge a higher premium that goes towards insurance as well as investment. These plans also deduct mortality and other charges and return only the amount that remains, to the policyholder, on maturity. Often, the return offered by endowment plans is very low as compared to the premiums paid towards the same.

    It is advisable to go for a pure insurance plan in case the primary need is to avail protection. Similarly, for those who already have a term insurance plan in place and are looking for investment avenues, endowment plan could be a good option. Since, pure term plans come at really low premiums, buying the same for protection purposes is the best strategy.

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