Close

Buy a Life Insurance Plan in a few clicks

Now you can buy life insurance plan online.

Kotak e-Invest

Insurance and Investment in one plan.

Kotak e-Term

Protect your family's financial future.

Kotak Guaranteed Fortune Builder

A plan that offers guaranteed income for your future goals.

Kotak T.U.L.I.P

A plan that works like a term plan, and Earns like ULIP Plan.

Kotak Assured Savings Plan

A plan that offer guaranteed returns and financial protection for your family.

Kotak Assured Pension

A plan that offers immediate or deferred stream of income

Kotak Lifetime Income Plan

Retirement years are the golden years of life.

Kotak Guaranteed Savings Plan

A plan that offers long term savings and life cover.

Close

Get a Call

Enter your contact details below and we will get in touch with you at the earliest.

  • Select your Query

Thank you

Our representative will get in touch with you at the earliest.

Difference Between Term Insurance and Endowment Plan

Term insurance is suitable for securing family financial stability in the absence of the policyholder, while endowment plans are ideal for those seeking wealth creation and life insurance.

  • 11,870 Views | Updated on: May 31, 2024

Term insurance is pure protection, providing a death benefit if you pass away during the policy term. It is affordable and has a high coverage. Endowment plans combine insurance with savings, offering a maturity benefit if you survive the term.

Both term insurance and endowment plans fall under the category of traditional life insurance policies, offering extensive life coverage along with potential tax advantages. Many of you might wonder which is better: term insurance or endowment plan? There are certain differences between these two insurance plans.

When opting for a term insurance plan, the benefits are accessible to your beneficiaries solely in the unfortunate event of your demise during the policy period. On the other hand, endowment plans provide death benefits to beneficiaries in case of an untoward incident during the policy term while also offering maturity benefits if you survive the policy term.

What is a Term Life Insurance?

A 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 benefits in the event 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 enrollment.

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.

Difference Between the Term Plan and Endowment Plan

A profound understanding of term insurance and endowment plans will empower you to make informed financial decisions for the well-being of your family. Let us take a closer look at the difference between these two:

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

Offer higher insurance coverage 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, a large sum assured requires a higher premium

Policy Objective

For people who are focused on 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 a 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.

  • Term plans are pure life covers with no additional benefits. On the other hand, endowment plans combine insurance and investment.
  • An endowment plan provides a maturity benefit in addition to risk protection.
  • Though the majority of the premium in an endowment plan is committed to investment, just a small portion is used to assure life insurance.
  • 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.
  • In endowment plans, a portion of the premium is allocated to the protection bucket. A considerable portion of your money is allocated to savings.
  • 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.

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, they will get a lump sum. This allows the policyholder to save regularly over a given period. However, this benefit will not be applied if the policyholder passes away during the policy term.

Benefits of Term Life Insurance

Term life insurance offers several benefits, making it a popular choice for many individuals. Here are some key advantages of term life insurance:

Affordability

Term life insurance is generally more affordable compared to other types of life insurance, such as whole life or universal life. This is because it provides coverage for a specific term without accumulating cash value.

Flexibility

Term life insurance allows you to choose the coverage period that aligns with your needs. For example, you can select a term that covers your mortgage period, the years until your children become financially independent, or a specific debt repayment period.

Death Benefit Payout

If the insured person passes away during the term of the policy, the death benefit is paid out to the beneficiaries tax-free. This money can be used to cover funeral expenses, replace lost income, pay off debts, or fund future financial goals.

Convertible Options

Some term life insurance policies come with the option to convert to a permanent life insurance policy without the need for a medical exam. This can be beneficial if your needs change, and you want lifelong coverage.

Risk Management

Term life insurance is an effective tool for managing financial risk during specific periods of your life when you may have significant financial obligations, such as a mortgage or children’s education expenses.

Benefits of an Endowment Plan

Endowment plans are a type of life insurance policy that combines elements of insurance coverage and savings or investments. Here are some benefits associated with endowment plans:

Life Insurance Protection

Endowment plans provide a life insurance coverage component, ensuring that a lump sum is paid out to the beneficiaries in the event of the policyholder’s death during the policy term. This feature helps financially protect the family and loved ones of the insured.

Savings and Investment

A portion of the premiums paid for endowment plans is allocated towards savings or investments. Over the policy’s term, the policyholder accumulates a cash value or maturity benefit, which is paid out if the insured survives the policy term.

Maturity Benefit

If the policyholder survives the entire policy term, an endowment plan typically pays out a lump sum amount known as the maturity benefit. This can be used for various financial goals, such as education expenses, buying a home, or funding retirement.

Guaranteed Returns

Many endowment plans come with guaranteed returns on the premiums paid, providing a level of predictability for policyholders. Guaranteed returns can help individuals plan their finances more effectively.

Tax Benefits

Endowment plans often offer tax benefits. In many countries, premiums paid for life insurance policies, including endowment plans, may be eligible for tax deductions. Additionally, the maturity benefit or death benefit received is often tax-free.

Wrapping Up

Selecting between term life and endowment insurance depends on your personal financial goals and what matters most to you. While both are considered traditional life insurance, offering significant coverage and potential tax benefits, key differences make them suitable for various needs.

Understanding the key differences in terms of investment focus, premium structures, and payout choices enables you to make an informed decision based on your unique circumstances. Whether you prioritize financial stability for loved ones in your absence or seek a combination of life insurance and investment, your choice between term insurance and endowment plans plays a pivotal role in shaping your family’s financial situation.

Key Takeaways

  • The choice between term insurance and endowment plans depends on personal financial goals.
  • Term insurance focuses solely on life cover, while endowment plans combine life cover with maturity benefits and investment options.
  • Term insurance may offer a premium return rider, while endowment plans allow partial withdrawals on the sum assured.
  • Some endowment plans come with guaranteed returns on premiums, enhancing the predictability of returns.

FAQS


1

What is the key feature of endowment plans upon policy maturity?

Endowment plans provide a lump sum benefit upon policy maturity, offering a payout to the policyholder if they survive the entire policy term.



2

Can term insurance policies be liquidated at any point?

No, term insurance cannot be liquidated; it only provides death benefits and does not accumulate cash value.



3

Are there tax benefits associated with both term insurance and endowment plans?

Yes, both term insurance and endowment plans often offer tax benefits, including deductions on premiums and tax-free maturity or death benefits.



4

Can term insurance be converted into permanent life insurance?

Some term insurance policies offer the option to convert to permanent life insurance without requiring a medical exam.

- A Consumer Education Initiative series by Kotak Life

Kotak e-Term

Download Brochure

Features

  • Life Cover till 85 years for Life & Life Secure Option
  • 3 Payout Options
  • Special Rates for Women
  • Option to exit the policy with premium refund at the age of 60*
  • Special Rates for Non-Tobacco Users
  • Free Medical Check Up every 5th year**

Ref. No. KLI/22-23/E-BB/2435

T&C