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Kotak e-Term Plan provides a high level of protection to your loved ones in your absence. Know more

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Difference Between Term Insurance and Endowment Plan

Difference Between Term Insurance and Endowment Plan
  • 20th Jun 2022 |
  • 5,129

While choosing a life insurance cover, you may often be in a dilemma between an endowment plan and a term plan. This is common because, like most people, you may not understand the different types of life insurance plans.

Firstly, both these types of plans are traditional life insurance policies. Moreover, these provide comprehensive life coverage while offering tax advantages. Nonetheless, there are certain differences between these two types of insurance plans.

When you opt for a term insurance plan, the insurance benefits are available to your beneficiaries only if something unfortunate happens to you during the policy period. In comparison, endowment plans offer death benefits to your beneficiaries if an untoward event occurs during the policy term. In addition, if you survive the policy term, you receive maturity benefits too.

However, before looking at the distinctions between term plan vs endowment plan, you must begin by understanding what a term insurance plan is and what an endowment plan means. Having a deep and clear understanding of each term insurance and endowment plan will give you a better idea of both and thus, help in making the correct financial decision for your family.

What is a Term Life Insurance?

Term plan is one of the insurance plans that is quite well known. In simple words, term insurance offers death benefit only that is, it gives the nominee monetary benefit in case of the policyholder’s death, for a longer time. The policyholder can choose the term for which they want to be insured and require life cover. Do remember that the amount of the assured sum is predefined and fixed at the time of policy enrolment.

Term insurance is considered one of the most affordable life insurances. Also, to keep the term insurance active, you will have to pay regular premiums, like other insurance plans. However, a term plan only provides death benefits. Thus, the policyholder does not get any benefits if they survive the tenure of the term insurance policy.

What is an Endowment Plan?

Like term insurance plans, endowment plans are equally popular traditional life insurance options. An endowment insurance plan offers both insurance and investment to the policyholder, somewhat similar to a ULIP (Unit Linked Insurance Plan).

Endowment plans offer policyholder a lump sum benefit once the policy is mature. If the policy holder survives policy terms, he will get a lump sum. This allows the policyholder to do savings regularly over a given period. However, this benefit will not be applied if the policyholder passes away during the policy term.

In case of policyholder’s demise during the policy term, the insurance part of the endowment plan will come into play. Then the nominee will receive the sum assured and additional bonuses, if any.

Endowment plans are widely available in the market to cater to the varied needs of the customers. This allows you to choose the best-suited endowment plans for financial security.

Difference Between Endowment Plan and Term Plan

Criteria

Term Insurance

Endowment Plan

Investment

Only offers life cover and no maturity benefits

Offers life cover and maturity benefits (options for regular investment)

Premium

Offers higher insurance cover at affordable premium

Requires higher premium for a higher insurance coverage

Sum Assured

Higher sum assured at affordable premium cost based on your income

Comparatively, for a large sum assured, requires a higher premium

Policy Objective

For people who are focused at securing the financial stability of their family in their absence

Best for those looking for wealth creation and life insurance

Rider

You can opt for premium return rider if the option is available.

You get a maturity benefit at the end of the tenure of the endowment policy.

Payout Choices

You cannot liquidate term insurance in any case.

Partial withdrawal on the sum assured is allowed.

Here are the six major differences between term insurance and endowment plan

1. Investment

Term plans are pure life covers with no additional benefits. On the other hand, endowment plans combine insurance and investment. Therefore, if you survive the policy term, the endowment policy pays accumulated corpus.

2. Premium

Term plans offer a higher sum assured cover for an affordable premium. If you want to avail of the same coverage under an endowment policy, you will have to pay a much higher premium. Additionally, you have to pay more to include riders and the basic coverage, thereby increasing the premium cost.

When you buy a term plan, the insurance company pays the benefits only in case of an unfortunate incident during the policy period. Therefore, the risks for the insurer are lower, which reduces the premium cost. Conversely, the insurance company also pays death benefits in an endowment plan. However, the company also pays maturity benefits if you survive the policy term, thereby increasing the cost to the insurer. Hence, a higher premium is levied on endowment plans.

3. Sum assured

Depending on the type of life insurance policy chosen, the sum assured varies. Most insurers allow you to opt for higher coverage based on your income when you invest in a term plan. However, to procure a higher coverage under an endowment policy, you need to pay a huge premium that may be beyond your financial capability.

4. Policy objective

An important difference between term life insurance and endowment plan is the policy objective. Term plans offer only death benefits to ensure your family members can meet their financial obligations, such as regular expenses or monthly instalments, without difficulties.

In comparison, endowment plans offer death benefits to your loved ones. However, these policies also allow you to invest and meet your future financial goals.

5. Riders

Both term and endowment plans offer additional coverage through riders at an extra cost. However, some life insurance riders are available only with term plans, while other insurance riders may be available only with an endowment plan.

6. Payout choices

Your beneficiaries may receive the death benefits either as a lump sum payout or in instalments as per your chosen option. However, endowment policy benefits are available only as a lump sum either on the demise or maturity.

It is recommended that you assess your requirements to decide which of these policies suits your personal needs.

Conclusion

Kotak e-Term Plan

Features

  • Nominal Cost
  • Multiple Plan Options
  • Flexible Payout Options
  • Critical Illness Rider
  • Tax Savings
  • Long term Coverage

Ref. No. KLI/22-23/E-BB/492

T&C

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