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Features
Ref. No. KLI/22-23/E-BB/492
Term insurance are low-cost, high-coverage protection plans with no cash value, while endowment plans combine savings and insurance, providing a lump sum if you survive the term but at a higher premium.
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 traditional life insurance category, offering extensive life coverage along with potential tax advantages. Many 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.
A term plan is one of the insurance plans that is quite well known. In simple words, term insurance offers death benefits only, giving 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 coverage. Remember that the assured sum amount is predefined and fixed at the time of policy enrollment.
Also, like other insurance plans, term insurance requires regular premium payments to stay active. However, a term plan only provides death benefits. Thus, the policyholder does not receive any benefit if they survive the tenure of the term insurance policy.
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.
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 term insurance and endowment insurance:
| |
|
|
| 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 an 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 life insurance offers several benefits, making it a popular choice for many individuals. Here are some key advantages of term life insurance:
Term life insurance is generally more affordable than 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.
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.
If the insured person passes away during the policy term, the death benefit is tax-free to the beneficiaries. This money can cover funeral expenses, replace lost income, pay off debts, or fund future financial goals.
Some term life insurance policies allow you to convert to a permanent life insurance policy without a medical exam. This can be beneficial if your needs change and you want lifelong coverage.
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.
When choosing between term insurance and endowment plans, policyholders must be clear about the endowment plan vs term plan and their financial objectives. This will help them determine the best option:
A policyholder must determine his financial objectives and requirements and then decide whether he would need term insurance, an endowment plan, or a combination of both.
The policyholder must evaluate his budget before buying the plan since term insurance offers lower premiums and endowments offer higher premiums.
Term insurance has lower premiums and gives more benefits, making it better for those who need more coverage. Endowment plans have lower coverage because part of their money goes into investments.
A policyholder should evaluate the duration of their coverage needs. Term insurance is ideal for short-term needs, whereas endowment plans are more appropriate for long-term needs.
Selecting between term life and endowment insurance depends on your financial goals and what matters most. 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 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.
1
Endowment plans provide a lump sum benefit upon policy maturity, offering a payout to the policyholder if they survive the entire policy term.
2
Term insurance cannot be liquidated; it only provides death benefits and does not accumulate cash value.
3
Yes, both term insurance and endowment plans often offer tax benefits, including deductions on premiums and tax-free maturity or death benefits.
4
Some term insurance policies offer the option to convert to permanent life insurance without requiring a medical exam.
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.
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
Features
Ref. No. KLI/22-23/E-BB/2435
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
