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Insurance and Endowment: Everything You Need to Know!

Endowment plans have more to do with savings and are often referred to as a good investment tool. Read further to know all about endowment plans.

  • 3,762 Views | Updated on: Mar 22, 2024

Whether you are a young professional embarking on your financial journey or a seasoned investor seeking to safeguard your loved ones’ future, understanding the differences between term insurance and endowment plans is a vital step toward securing your financial goals.

Insurance plays an essential role in protecting your financial future and protecting your loved ones. Among the various insurance options available, endowment plans are often misunderstood or overlooked. These plans are as beneficial as any other plan.

In this article, we will explore the details of term plan and endowment plan, shedding light on what an endowment plan is, the difference between endowment plan and term plan, and how to choose between the two.

What is Term Insurance?

Term insurance is insurance covers that provide financial protection and security to your loved ones in the case of your sudden and unfortunate demise. Any kind of untoward incident or eventuality can cause a lot of emotional and financial stress - especially if you have a family with dependents. This is why term insurance is important in such cases, as it provides a lump sum to your dependents, thereby securing their future and lifestyle. Let us have a look at the features of term insurance:

  • For term insurance, the premium is only for the sum assured, and therefore, you can get huge coverage by paying affordable premiums over your selected term period.
  • It comes with the clause of an eventuality of the policyholder post, in which the payout happens and is given to the dependents.
  • It is often considered a higher-risk investment because there are no returns if you outlive your term period. However, some plans pay the accumulated premiums back to you.
  • There are no maturity benefits in the case of pure-term insurance
  • The term plan is for a limited period as per the term period you choose to pay your premiums.
  • A term plan provides a pure life and risk cover and is suitable for everyone - especially those who want to look after their loved ones. It is more of an insurance than an investment.

What is an Endowment Plan?

An endowment plan is a unique type of life insurance policy that combines insurance coverage with investment features. Unlike traditional life insurance policies that only provide a death benefit, endowment plans offer both a death benefit and an investment component. This means that if the policyholder endures the policy term, they receive a maturity benefit in addition to the sum assured. Here are some of the features of these plans:

  • The premiums for endowment plans are higher as you invest your money in stock markets, etc., plus there are loyalty additions as well.
  • You can receive the lump sum amount or the amount in installments after you complete your payment tenure or on the policyholder’s death.
  • It is a low-risk investment as you will get assured returns.
  • Endowment plans come with maturity benefits.
  • These are long-term plans that are also known as lifetime plans.
  • An endowment plan is a good way to invest and grow money. It acts both as an investment as well as an insurance.

Did You Know?

Endowment policies can include riders that provide additional protection for the policyholder when certain criteria are met, such as loss of income due to disability or death.

Difference Between Endowment Plan and Term Insurance

The confusion between endowment and term insurance plans is very common. It is true that they both provide life covers, but there are many differences between term plans and endowment plans. They cater to different requirements depending on your specific needs. Let us have a look!

Parameters

Term Insurance Plans

Endowment Plans

Purpose

Term insurance provides life coverage and financial protection for a specific term or duration.

Endowment plans combine life coverage with savings and investment elements, aiming to provide both protection and a guaranteed sum at maturity.

Coverage Duration

It offers coverage for a fixed period. In the case of the demise of the policyholder, a death benefit is paid to the beneficiaries.

It offers coverage for a specified term. In the case of the policyholder’s survival until the maturity of the policy, a lump sum maturity benefit is paid.

Premiums

Premiums for term insurance policies are generally lower compared to endowment plans.

The premiums are calculated based on the policyholder’s age, health, coverage amount, and term length.

Premiums for endowment plans are higher as they include both life coverage and investment components.

These premiums are calculated based on factors such as age, health, coverage amount, term length, and expected returns.

Cash Value and Maturity Benefit

It does not accumulate cash value or provide a maturity benefit. If the policyholder endures the term, there is no payout or investment return.

These plans build cash value over the policy term.

They offer a guaranteed maturity benefit, which includes the sum assured plus the accumulated investment returns.

Investment Component

It does not have an investment component. Premiums paid solely go towards providing life coverage.

They have an investment component where a portion of the premium is allocated to investments, such as bonds or fixed deposits.

The returns on these investments contribute to the maturity benefit.

Flexibility

It offers flexibility in terms of choosing the coverage amount and term duration based on the policyholder’s needs and affordability.

It provides less flexibility compared to term insurance.

The sum assured premium and policy term are predetermined.

Summing It Up

Choosing the right insurance plan requires a thorough understanding of your budget, financial goals, and risk tolerance. Term insurance provides pure protection, while endowment plans offer a combination of insurance and investment benefits. Consider your needs carefully and consult a financial advisor if necessary to make an informed decision. Remember, insurance and endowment plans are valuable tools to assure your future and protect your loved ones.

By understanding the field of insurance and endowment, you can allow yourself to make suitable choices, ensuring financial security and peace of mind.

Key Takeaways

  • Insurance, including endowment plans, is crucial for safeguarding your financial future and protecting your loved ones.
  • Term insurance offers life coverage and is suitable for those primarily seeking financial protection, with no investment component or maturity benefits.
  • Endowment plans combine life coverage with savings and investment features, offering both protection and a guaranteed sum at maturity.
  • Term insurance premiums are generally lower, providing affordable coverage for a specific term, while endowment plan premiums are higher due to the investment element.

FAQ

1

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

Yes, an endowment plan typically provides both maturity benefits and death benefits. The maturity benefit is paid out to the policyholder if they survive the policy term. In contrast, the death benefit is paid to the nominee or beneficiary in case of the policyholder’s unfortunate demise during the policy term.

2

How much life cover should I choose with term insurance?

The amount of life cover you should choose with term insurance depends on various factors such as your financial obligations, lifestyle, income, and future needs of your dependents. It is advised to have a policy with a cover that is 10 to 15 times your yearly income.

3

Can the duration of life cover be changed with term insurance?

No, the duration or term of life cover cannot be changed once the term insurance policy is issued. A term insurance policy provides coverage for a specific period, ranging from 5 to 30 years, and the policyholder pays premiums accordingly. If you require coverage for a longer or shorter duration, you would need to purchase a new term insurance policy or consider other options available from the insurance provider.

  • The sum that will be assured
  • Fees for the premium
  • Senior citizen’s age

4

Are there any riders available with an endowment plan?

Yes, many insurance companies offer additional riders or add-ons that can be attached to an endowment plan for enhanced coverage. These riders provide additional benefits or features beyond the basic policy. Some common riders available with endowment plans include critical illness riders, accidental death benefit riders, waiver of premium riders, and disability riders. These riders can be chosen based on your specific needs and preferences, providing you with more comprehensive insurance coverage.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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