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Secure Your Future: Understanding the Differences Between Term and Endowment Insurance

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Endowment Plan vs Term Plan: Which Insurance Option Suits You
April 16, 2024

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Financial security is one of the primary concerns for most individuals. You might be looking to secure your family's financial aspects to ensure they live a comfortable life after your untimely demise.

Life insurance policies can help you overcome such problems. Term insurance and endowment are two popular life insurance policies. The debate of "Endowment Plan vs Term Plan" is crucial for anyone looking to make an informed decision about their insurance needs.

In this article, we will look into the specifics of both endowment and term plans to understand the differences & similarities between the two types of life insurance. 

What is term insurance?

Term insurance plan policy is a pure protection plan that offers financial coverage to the nominee when the policyholder dies untimely within the course of the plan. This payout is a death benefit which the family can opt to receive in a lump sum or at a regular interval and is tax-free. 

What is an endowment plan?

An endowment plan is a policy that acts as both a life insurance and an investment tool. Here, the nominee receives a death benefit in the event of the policyholder's unfortunate death within the policy period. In case the policyholder survives, the total premium paid grows at a pre-specified rate and is paid out as a lump sum at maturity.

Difference Between Term Plan Vs Endowment Plan

Parameters

Term Plan

Endowment Plan

Aim

The main purpose of a term plan is to get insurance to cover death risk.

The main purpose of an endowment plan is to allow policyholders to save and get insurance coverage.

Premium amount

The premium amount is low as it provides coverage for specific years only.

The premiums charged might be high as it offers dual benefits of wealth creation along with insurance.

Maturity benefit

Generally, term plans don’t offer maturity benefits. However, the return of premium riders1 can be opted to get premiums at the end of the policy.

Endowment plans offer maturity benefits without having to opt for additional riders1.

Suitability

Term plans are for individuals who want to provide for their family in unforeseen circumstances.

Endowment plans are for individuals seeking insurance coverage along with wealth creation or long-term savings.

Withdrawal

Term plans do not offer an option to make withdrawals from the policy.

Certain endowment plans offer an option to make withdrawals in case of emergencies.

Tax benefits

The premiums and sum assured of term policies are eligible for tax deductions u/s 80C & 10 (10D) of the Income Tax Act2.

The premiums and the sum assured are eligible for tax benefits under section 80C & section 10 (10D) of the Income Tax Act2.

The deductions can extend up to Rs. 1.5 lakh a year.

Payout options

Term plans offer payouts of sum assured in multiple forms such as monthly, lump sum or a combination of both.

Endowment plans generally offer payouts in lumpsum only.

Rider options

Coverage of a term plan can be enhanced through various add-on riders1 such as critical illness, accidental death, loss of employment, return of premiums, etc.

Coverage of an endowment plan can be enhanced through various add-on riders1 such as critical illness, accidental death, loss of employment, return of premiums, etc.

How To Choose Between Term Insurance And Endowment Plan?

Once you have clarity of the differences between term insurance and an endowment plan, it’s easier to figure out which one is ideal for you. To do that, it’s better to focus on the following aspects.

Financial objective: Be sure of what you want to achieve in life and what your requirements are. Depending on that, identify whether you would need only life insurance, an investment or a plan that acts as a combination of the two.

Expenses: Take note of your current expenses as well as planned future expenses. Keep in mind the growing cost of living and inflation, too. Considering both, you can decide whether to go for an endowment plan or term insurance.

Affordability: Needless to say, if you pick a plan, you need to pay the premiums regularly to enjoy its benefits at the right time. Term insurances come for a lower premium, while endowment plan premiums are on the higher side. Check your affordability before taking the pick.

Life goals: It is essential to identify your life goals and have clarity on what you want from your life 20-30 years later. This will help you realise if the term insurance or the endowment plan is ideal for you.

Understanding the distinct features of the term plan as well as the endowment plan, therefore, is a key factor here. The rest will fall into place automatically.

Conclusion

Endowment Plan vs Term Plan is an important comparison for individuals looking to secure their financial future and ensure protection for their loved ones.

Both plans come with pros, cons and distinct features. Your aim, budget, expectations and financial goals will decide what kind of policy to purchase.

The best way to make the right choice is to compare different plans (term plan and endowment plan) along with taking professional advice.

FAQs On Endowment Plan Vs Term Plan

Which is better: A term plan or an endowment plan?

To decide which is better for you, it is advisable to note your life goals, financial objectives, expectations and budget.

What is the difference between insurance and endowment policy?

Insurance offers life cover, while an endowment policy offers insurance and investment facilities.

Is an endowment plan a good investment?

If your aim is to build wealth along with getting insurance, an endowment plan is indeed a good investment in such cases.

Do I get maturity as well as death benefit with an endowment plan?

Yes. If you outlive the policy, you will get the maturity benefit. And if you pass away, your beneficiaries get the sum assured/death benefit.

How much life cover should I choose with term insurance?

The coverage can vary from one individual to another depending on income, personal goals, needs, age, expenses, lifestyle, inflation, etc. Hence, there is no one amount suited for everyone.

Are there any riders available with endowment plans?

Yes. You can enhance the policy's coverage by adding riders1 such as accidental death rider1, waiver of premium, critical illness, disability, etc. These riders can vary from one person to another depending on the specific requirements of the individual.

ARN - ED/04/24/10532

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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Disclaimer

1. For all details on Riders, kindly refer to the Rider Brochures available on our website.

2. Tax benefits are subject to conditions under Sections 80C, 80D, Section 10(10D) and other provisions of the Income Tax Act, 1961.

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