Why Is Term Insurance Better Than An Endowment Plan?

Let’s understand these differences: 

Term Insurance And Endowment Plans 

Financial planning is very important at the early stages of life. It helps you to save and build a protected and a secured financial future for your family. However, knowing the correct balance between investment and insurance is crucial at the time of managing the finances. The topmost priority in financial planning is securing their families. Hence, it is a smart decision to invest in life insurance that helps you to be financially secured. In this article, we will be discussing if term insurance is better than an endowment plan? Two insurance policies instantly come into mind when thinking about the financial future goals are term insurance and endowment plans. 

1. Term Insurance 

   Term insurance is a pure financial protection plan that offers cover for a limited period. If the policyholder dies during the policy term, then he/she is entitled to receive the death benefit in terms of a pre-specified lump sum amount. 

2. Endowment Policy 

   Unlike term insurance, an endowment policy is a combination of insurance and investment, offering protection in financial emergencies. The offered life cover is called as sum assured amount of the endowment plans. 

Why Is Term Insurance Better Than An Endowment Plan? 

Listed below are the points discussing the difference between term insurance and endowment plans: 

1. Premiums 

   A term insurance plan offers security from risks without any additional investments. Hence, the premium prices of the term insurance plan are low which are required to be paid by the policyholder at regular time intervals. Whereas, endowment plan has maturity benefits which relatively increase the premium prices. It also comes with an add-on that further makes the premiums costlier. The term insurance plans are more cost-effective and economical than the endowment plans. 

2. Sum Assured 

   Sum assured is a pre-decided amount that the insurer agrees to pay to the policyholder or his/her nominee if an insured incident happens or at the end of the term plan. Assured can determine the sum assured amount at the time of purchasing the term insurance policies. The sum assured in the term insurance plan is higher than the sum assured of the endowment plan. This means that a policyholder is required to pay a high amount of premiums to receive more sum assured amount in an endowment plan. 

3. Death Benefits And Maturity Benefits 

   In maturity benefit, the policyholder receives the decided sum assured amount along with the additional bonus, if the life assured survives till the expiry date of the endowment plan. Term plans do have maturity benefits but only have death benefits for beneficiaries. However, endowment plans offer both – Death and Maturity Benefit. 

4. Insurance Vs. Investment 

   One of the major differences between a term and an endowment plan is the nature of the plan. A term plan is a pure life protection plan that provides no such add-ons cover, but endowment plans are a combination of insurance and investment that allows you to save for your future objectives. On the other hand, term insurance plans provide no options for long-time savings. Like, if you purchase a term insurance plan, the death benefits will be received by beneficiaries in case of your unfortunate death. In the endowment plan, you can get the complete corpus that you have paid overtime at the end of the policy. 

5. If The Policyholder Passes Away

   In a term insurance plan, death benefits are provided to the beneficiaries in case of the policyholder’s untimely demise. The guaranteed sum amount is higher in term insurance and the received amount helps the family to meet their expenses. Endowment plans also offer death benefits but the sum assured amount not necessarily is adequate for completing financial requirements. 

6. Add-On Features 

   Riders are the additional features for which you will have to pay an extra premium if you want to buy them. Both plans, term and endowment plans offer riders. But certain riders are available only with the term insurance plans while some are only available with endowment plans. And both plans offer critical illness, accidental death rider, premium waiver, and hospital cash. All the life insurance plans offer tax benefits as per the prevailing laws of the Income Tax Act, 1961. Therefore, the exemptions on tax are higher in the case of endowment plans when compared to the term insurance plans. 

Term Insurance Vs Endowment Plans - What Should I Buy And Why? 

Both plans have their disadvantages and advantages but the selection depends entirely on your requirements. In the below section, we are going to discuss whether a term insurance plan is a right buy or an endowment plan. Here’s a quick laydown: 

As we have discussed above, the premium amounts are lower as compared to the endowment plans. It simply means, that if you buy a term plan of Rs.1 Cr cover, the premium amount of this cover will be lower than the premium amount you pay in the case of an endowment plan. 

Endowment plans deduct the mortality amount and other charges and only return the amount that remains to the life assured at the time of maturity. Sometimes, the returns provided by the endowment plans are much lower than the total premium paid towards the entire policy. 

A term plan offers death benefits, and on the other hand, endowment plans offer both maturity and death benefits. Thus, both term and endowment plans provide a sum assured amount to the beneficiaries in case of the policyholder’s demise during the policy time. Endowment plans are beneficial for savings purposes whereas term insurance plans are ideal for those who are looking out for higher coverages at low premium prices, thus provides financial protection to your family in case of your absence. Buying pure life insurance is a smart option when your foremost concern is your family’s protection. 

The Final Words! 

When it comes to your family, their financial protection is your priority. Being a sole earning member of the family, a term insurance plan offers you a sufficiently large amount that can help his/her family for the long term. Term insurance plans are more economical and pocket-friendly than endowment plans. The selection of the right insurance plan depends entirely on your financial requirements and future objectives. Choose your plan smartly for a better tomorrow.