Term insurance or endowment policy? Check what suits you

For a safe and secure future, insurance is an essential instrument. Life insurance is one of the most popular instruments to secure the future of one’s family members. But which one is better, term insurance and endowment insurance plan. There are some basic differences between term and endowment plans. Money9 gives you a basic comparison.

Basic differences

Term insurance is a type of insurance where only terminal benefit i.e. death benefit, is available for the insurer. There is no other benefit.

On the other hand, an endowment policy offers multiple benefits. It offers life insurance as well as savings or investment options during the period of the plan.

For example, if a person buys a term insurance and insures his/her life with a death coverage of about Rs 1.5 crore, he/she has to pay a premium of around Rs 16,000 per year for a period of 25 years. If that person dies within the insurance period, then the nominee will get Rs 1.5 crore.

If everything goes well, the insured person, or his/her nominee, would not get anything after the maturity period. After the stipulated time period, the insurer has to either buy a new plan or forget it altogether.

On the other hand, if any person opts for an endowment policy, he/she will be paid back after specific intervals or get a lumpsum after the maturity tenure. Additionally, if the subscriber dies during the period then the nominee will get death benefits too.

Pocket pinch

Since a term insurance plan does not offer any return and only provides risk cover, it is less expensive. On the other hand, an endowment plan provides a maturity benefit, along with loyalty additions. These additional features make an endowment policy more expensive.

For example, for a term plan of Rs 1.5 crore, a person has to pay around Rs 16,000 annually. On the other hand, for an endowment plan of approximately Rs 40 lakh with death benefits of Rs 12-13 lakh a person needs to pay at least Rs 55,000 yearly.

Payout options

In term insurance, the nominee receives the sum assured in lump sum or equal instalments or a combination of both on the death of the insured during the policy period. The policyholder has the option to customise the payout option based on his/her family needs.

In an endowment plan, the payout is lump sum either on the death of the policyholder, during the policy term, or as a maturity benefit, on completion of the policy term or is a mix of all the options.

Expert take

Experts feel both are required for a person to protect himself as well as the family he/she has.

“Term insurance is a pure risk cover and a product which is an absolute must for every individual who has any dependent relying on their income. On the other hand, endowment plans are combinations of insurance and investment. You will get a life cover and you get an investment component,” said Arvind Agarwal, income tax professional and CFA.

It depends upon the investment pattern and different factors of a person including the risk factors, but both types of insurance plans are important to secure the future, added Agarwal.