If you are a first-time life insurance buyer, you must know that there are different types of life insurance policies. Each type of life insurance has specific features and serves different purposes. While some plans purely provide financial protection to the insured family, other life insurance plans like endowment insurance give you both insurance protection and savings opportunities.
If you are confused about what insurance to choose, knowing the difference between the two will help you make the right choice. We will compare term insurance and endowment plans based on different parameters.
What is term insurance?
Term insurance is a pure protection life insurance policy that offers coverage only for a specific period. In term insurance, you pay the premium; in return, the insurance company agrees to pay the death benefit to the nominee in the event of your untimely death during the policy period. Term insurance does not offer any maturity or survival benefits.
What is endowment insurance?
An endowment plan is an insurance-cum-savings instrument that offers insurance protection and allows you to save for your long-term financial goals. It pays death benefit to the nominee if you pass away during the policy period. However, if you survive the policy term, you get maturity benefits.
Term insurance plans vs endowment plan – knowing the difference
Term insurance has the lowest premium amongst all other life insurance products. You can get a policy with a high sum assured up to Rs. 1 crore at a premium starting less than Rs. 15 per day.
The premium for an endowment plan is higher than term insurance. This is mainly because this policy offers maturity benefits and loyalty additions.
- Sum assured
The term insurance plan offers you the highest sum assured at the most affordable price. This is because it provides only risk cover for your family.
On the other hand, the sum assured in an endowment plan is not as high as term insurance. This is because the endowment policy allows you to fulfil the need for long term savings. Although the sum assured is low, you get maturity benefits at the end of the policy term. You can use the policy benefits to meet your financial goals.
- Payout option
When you buy a term insurance policy, the insurance companies give you the flexibility to choose the payout mode. You can either choose the lump sum payout mode, deferred payout or a combination of both. In lump sum payout mode, the nominee gets the entire sum assured in a lump sum. Whereas, in deferred payout mode, the nominee can get the sum assured in smaller instalments over a period.
In an endowment policy, if the policyholder passes away during the policy period, the nominee receives the sum assured in a lump sum. If you survive the policy period, the insurer pays the maturity benefits, including the sum assured and the accrued interest, in a one-time payment.
As evident from the points mentioned above, term insurance and endowment plans have different benefits and fulfil different needs. So, know your needs and choose the right kind of insurance accordingly.