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Difference Between Term Insurance and Endowment Plan

Term plans are life covers with no additional benefits, and endowment plans combine insurance and investment. Read to know the difference between term insurance and endowment plans.

  • Nov 28, 2023
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

While choosing a life insurance cover, you may often be in difference 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 a term plan and endowment plan, you must begin by understanding what a term insurance plan is and what an endowment plan means. A deep and clear understanding of each term insurance and endowment plan will give you a better idea of both and, thus, help you make 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 benefits only, that is, it gives the nominee monetary benefit in case of the policyholder’s death. 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.

Also, to keep 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 benefit if they survive the tenure of the term insurance policy.

What is an Endowment Plan?

Like term insurance plans, endowment plans are equally popular with 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 policyholders a lump sum benefit once the policy is mature. If the policyholder 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 the 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 customers. This allows you to choose the best-suited endowment plans for financial security.

Difference Between the Term Insurance and Endowment Plan


Term Insurance

Endowment Plan


Only offers life cover and no maturity benefits

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


Offer 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


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 the 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 the accumulated corpus.

2. Premium

Term insurance is the most affordable life insurance. Term insurance provides maximum coverage while charging the lowest price. An endowment plan provides a maturity benefit in addition to risk protection. Participating endowment schemes also provide reversionary dividends upon maturity. Endowment plans’ investment and growth possibilities result in higher premiums.

Though the majority of the premium in an endowment plan is committed to investment, just a small portion is used to assure life insurance.

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 higher coverage under an endowment policy, you need to pay a huge premium that may be beyond your financial capability.

A term plan has the largest sum assured because it is meant to provide you with just risk coverage. It satisfies your demand for security. In endowment plans, a portion of the premium is allocated to the protection bucket. A considerable portion of your money is allocated to savings. As a result, the sum assured in an endowment plan is not large.

4. Policy objective

An important difference between term life insurance and an 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

In the event of your death, the nominee might collect the sum assured in a variety of ways with term insurance products. The payout can be in the form of a lump sum, equal instalments, or a combination of the two. You can personalise your payment choice by selecting one of the above alternatives based on your needs.

Endowment plans pay you a lump sum either as a maturity benefit or on the death of the policyholder.

It is recommended that you assess your requirements to decide which of these policies suits your personal needs. A lump sum payment is required for long-term goals such as a child’s schooling or retirement. Furthermore, these financial objectives have a set deadline. As a result, you should invest in safe financial instruments. It is prudent to have an endowment strategy in place for such financial objectives. These plans help you to preserve your wealth. You may live your life in peace, knowing what you will obtain when you reach maturity.

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- A Consumer Education Initiative series by Kotak Life