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.
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
Published on : Mar 11, 2021
Buying life insurance is a must in today’s fast-paced life, to safeguard your family against financial challenges in case of an unfortunate event. However, different life insurance products serve different financial purposes. Hence, you need to understand the differences to choose the best plan for your specific requirements.
Endowment plans and term plans are two such life insurance products. Both provide payouts to your nominee if an unwanted incident occurs during the policy period. Tax benefits are also available with both products. However, term plans are pure protection plans. But endowment plans combine life insurance with investment.
Term plans
These plans replace your income if your family loses your earnings financial support due to a contingency. It involves no savings component. Therefore, only your nominee gets the sum assured amount if an unfortunate event occurs while the policy is in force. Regular term plans provide no maturity proceeds if you survive the policy term. But return-of-premium plans (TROP) refund the entire premium when the policy tenure ends.
However, your entire premium goes towards securing your life cover. Hence, for relatively low premiums, you can secure sizable coverage to meet your family’s current and future expenses. The payouts can help them repay any outstanding debts, cover their living costs, your children’s education fees, and your spouse’s old-age needs.
Endowment plans
An endowment plan helps you save for the future. Along with the life cover, it increases your invested sum. One part of your premium secures the coverage. The insurer invests another part and shares the profits with you either as bonus payments or guaranteed additions to your capital.
The returns are independent of prevailing market conditions. Most endowment plans guarantee a minimum amount payable at the end of the policy term. Hence, to increase your wealth without facing market fluctuations, you can invest in endowment plans.
The following table brings out the points of distinction between the two categories.
| Feature |
Term Plan |
Endowment Plan |
| Purpose of the policy |
Getting life cover to secure family members financial future in adversities |
Life coverage as well as a long-term investment to create funds for life goals |
| Maturity benefit |
No payout unless you opted for a TROP, which returns the premiums paid if you survive the policy period |
Your invested sum, along with bonuses or guaranteed additions, paid on policy maturity. |
| Premium |
Typically the lowest among the different life insurance categories since insurers are required to pay only if the risk covered materializes. |
Used to secure life cover as well as build a cash value, increasing the cost to the insurer. Hence, premiums are higher than term plans for the same coverage amount. |
| Sum assured |
A cover at least 10 -12 times your annual income available at affordable premiums |
For the same premium amount, the sum assured might be lower, but the invested sum generates decent returns. |
| Additional benefits |
Mostly offer add-on benefits for a nominal hike in the premium, such as:
- Critical illness rider, offering lump-sum payouts on the diagnosis of the life-threatening ailments covered in the plan
- Accidental Death Benefit, offering extra payouts over and above the sum assured in case of a fatal accident
- Waiver of premium in case of a permanent disability due to accident, keeping your life cover active without premium payments
|
All riders available under term plans may not apply to endowment plans. |
Kotak Life offers term plans and endowment plans catering to different investor needs. You can download brochures and study the various benefits. It is advisable to include both policy types in your investment portfolio. A combination of term and endowment plans ensures all-round financial protection and growth.
