How To Choose Between Term Insurance And Endowment Plans?

Two of the available life insurance options today are term insurance and endowment plans. Both of these come with some unique features. For example, term life plans are known to be one of the most affordable life insurance options. On the other hand, an endowment policy can be turned into a short-duration commitment with maturity benefits. So, which one is right for you?

If you are confused about which type of life plan to opt for, and are considering between term insurance and endowment plans, it is ideal for you to understand how each of these functions. It may also help to compare these two and understand what the differences between them are.

What is Term Insurance?

If you are looking for a simple, no-frills life insurance plan, term insurance may be one of the options that you come across. These plans are relatively more affordable, making them suitable for people who are not keen on spending a heavy amount on their insurance premiums.

This is made possible by the simple design of these plans. Term insurance policies are plans that only offer a life cover as their primary feature. Level term plans do not come with any maturity benefits. Even ‘return of premium’ plans do not offer any growth on your premiums. Depending on the sub-type of plan you are opting for and the insurance provider, your plan may come with a few add-ons as well as rider options. Riders are additional features that you can pay for to enhance your policy.

To get a better idea of term plan premiums, you can use a term insurance calculator available online. Another aspect of term plans that you ought to be aware of is that these plans do not offer a permanent life cover. The maximum duration of these plans tends to be up to 65-75 years of age of the life assured. The minimum term duration of these plans can be five to 10 years.

These plans may be suitable if you are in the early stages of your career, or if you seek a plan that is low-cost. It is also suitable for people who do not seek to opt for a newer plan in the later stages of their life.

What are Endowment Plans?

If you are keen on earning significant maturity benefits on your life insurance, an endowment policy may be one of the most suitable options for you. These plans can be taken for a minimum duration of 10 years (depending on what your insurance provider has to offer). Upon maturity of the plan, the policyholder can expect to earn a survival or maturity benefit.

This allows you to not only create a safer future for your family but also gives you the scope to fulfil your dreams. Thus, an endowment policy can be used to create savings as well as future security for your loved ones.

Term Plans Vs Endowment Plans

Here are some of the key differences to remember between term insurance and endowment policies.

Term Insurance Endowment Policy
·         Simple, no-frills life insurance ·         Life insurance with savings
·         Premium costs leaning towards affordability ·         Premiums tend to be slightly more expensive as compared to term insurance
·         Sum assured offered may be lower as compared to endowment plans ·         Policyholder can opt for a high sum assured
·         Offers only death benefit, no maturity benefits (unless opting for ‘return of premium plans) ·         Death as well as maturity benefit offered
·         Useful for customers looking for an affordable life cover ·         Suitable for consumers looking to create savings alongside having a life cover

How to Choose Between the Two?

It is important to define and organise your goals, as well as your expectations from life insurance before you shortlist the plans that are suitable for you. For example, if affordability is an important factor for you, you may lean towards term insurance. On the other hand, if maturity returns are a priority for you, endowment plans may be the right option. Know that you can also buy one of these plans for a small duration and follow it with the other plan.

Endowment plans, as well as term insurance, are two of the many life insurance plan options available to you. It is ideal to take into account your goals before you make a choice.

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