Endowment Plan vs Term Plan
What is a Term Plan?
A term plan is a pure life insurance product that only provides financial protection to your family in case of your unforeseen demise. In no way does your money grow with a term plan.
What is an Endowment Plan?
Unlike term insurance, an endowment plan is an insurance cum investment tool where your money grows over time. An endowment plan helps you to save in periodic intervals and build your wealth through additions and bonuses on your invested amount.
Difference between Endowment vs. Term Insurance
| Endowment plan | Term plan | |
|---|---|---|
| Goals served | Insurance + Savings | Only insurance |
| Coverage | An endowment plan provides dual coverage of insurance and wealth creation through savings | A term plan only provides life cover~ |
| Sum promised (sum assured) | Lower as compared to term insurance | Higher than an endowment plan |
| Price (Premium charged) | As endowment plans offer dual benefits of insurance and wealth creation, they have a higher premium than term plans | As term plans offer only one benefit (of insurance), they have a lower premium than endowment plans |
| Maturity benefit | An endowment plan gives a fixed amount on its completion that is a combination of accumulated returns on the invested premiums and additions/bonuses on those | A Term plan does not offer any maturity benefit, instead, it offers a life cover~ to support your loved ones in your absence. |
| Payout modes | In an endowment plan, the payment of the sum promised and the maturity benefit, both are in a lump sum | In a term plan, the payment of the sum promised is in lump sum or monthly instalments or a combination of both |
| Rider benefits | You can add extra benefits to an endowment plan on the payment of more premiums. These benefits provide additional financial support or pay the premiums on your behalf in case of: • An accident • Physical disability arising due to an accident • Illness of a serious/critical nature |
You can add extra benefits to a term insurance plan too on the payment of more premiums. These benefits provide additional financial support or pay the premiums on your behalf in case of: • An accident • Physical disability arising due to an accident • Illness of a serious/critical nature |
| Tax* benefits | You receive tax* benefits under the prevailing income tax laws where: • You can claim deduction* of the premiums paid by you towards the endowment plan. These deductions can be up to ₹ 1.5 lakh in a year under Section 80C • The sum assured and maturity benefit received under the endowment plan are exempt under Section 10(10D) subject to conditions mentioned therein |
You receive tax* benefits under the prevailing income tax laws where: • You can claim deduction* of the premiums paid by you towards the term plan. These deductions can be up to ₹ 1.5 lakh in a year under Section 80C • A Term plan does not offer maturity benefits. However, the sum assured is exempted under Section 10(10D) subject to conditions mentioned therein |
| Withdrawal options | You can withdraw money from an endowment plan in case of an emergency, after a few years. | You cannot withdraw any money from a term insurance plan. |
Conclusion
If you want your family to have a high amount of finances in your absence, a term plan would be more suitable for you. But if you want to grow your wealth yet not compromise on getting an insurance cover, you can get an endowment plan. The best way to find which one will be right for you is to assess your needs and budget. At their core, both Endowment Plan and Term Plan offers financial support.
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