Choose The Right Plan- Comparison Between Term Plan And Endowment Plan

The majority of consumers frequently become confused between term insurance plans and endowment plans when applying for life insurance. Both the term plan and the endowment plan's task is to offer life insurance. But that is the only thing they have in common. Both have different objectives; an endowment plan seeks to safeguard your loved ones while simultaneously accumulating wealth, whereas a term plan seeks to do so after your passing. After evaluating your needs and their analysis, the best plan can be selected from the two.

What is a Term Plan?

A term plan is a simple type of life insurance that just offers your family financial stability in the eventuality of your departure. In a term plan, the money doesn't increase its value. 

What is an Endowment Plan?

A long-term investment and insurance strategy known as an endowment plan see your money value increase. You can build your corpus through periodic additions and bonuses on the invested amount with the aid of an endowment plan.

Differences Between A Term And An Endowment Plan

The following are the differences that exist between a term plan and an endowment plan.

• Cover

Term insurance is a simple type of life insurance that merely offers life protection. The insurance coverage is rather straightforward; if the policyholder passes away before the end of the plan period, the family will be given the insured money. However, there is no maturity benefit if the policyholder lives longer than the duration of the plan. On the other hand, a life insurance policy provides the choice of both savings and life insurance. In the event of the policyholder's untimely death, the death benefit is paid to the endowment plan nominee. Additionally, maturity benefits are payable if the policyholder lives longer than the plan duration.

• Premium

A term plan is less expensive because it offers just risk protection and no returns. As a result, you just pay a small premium for term insurance. However, endowment plans are more expensive and need greater premium payments because they offer loyalty bonuses in addition to maturity benefits.

• Assured Sum

The amount in a term insurance plan is the biggest because it only offers the risk coverage you need to meet your protection needs. In the case of an endowment plan, the amount is lower because it satisfies the demand for saving.

• Goal

Term life insurance offers financial security in the event of your death, but an endowment plan enables you to set money aside for future objectives. Endowment plans provide both insurance and savings, whereas term plans just provide insurance.

• Payout

Upon the beneficiary's demise, term insurance nominees may receive a lump sum, equal monthly payments, or even a combination of the two. In contrast, the policyholder receives both the lump sum payment and the maturity benefits under an endowment plan.

• Maturity Benefits

An endowment plan offers returns on premiums and bonuses in a predetermined amount upon completion. While a term plan does not provide a maturity benefit, it does provide life insurance in your absence.

• Tax Benefits

Both plans allow you deductions up to Rs. 1.5 lakh each year from the premiums you pay. Even if a term plan does not provide benefits at maturity, Section 10 exempts the amount (10D). The amount of the assured sum and the maturity benefits in the case of an endowment plan are both exempt from taxes under Section 10 (10D).

• Withdrawal

After a few years, you can take money out of an endowment plan in case of an emergency. In a term plan, you cannot, however, do the same.

Conclusion

These are the main distinctions between endowment plans and term insurance. Both term plans and endowment plans give financial support, but term insurance would be preferable if you want your family to be financially stable, while an endowment plan would be best if you want to increase your fortune. Understanding the variations may aid in achieving the various objectives while applying for insurance.

Also Read: 

Features Of Endowment Plans

When Should I Purchase An Endowment Policy?