Insurance and Endowment: Everything You Need to Know!

• 1st Oct 2021
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The confusion between Term Insurance Vs Endowment plans is very common. It is true that they both provide life covers, but there are many differences between term plan and endowment plan. They cater to different requirements depending on your specific needs. Let us have a look!

Term Insurance

Simply put, term insurances are insurance covers that provide financial protection and security to your loved ones in the case of your sudden and unfortunate demise. Any kind of untoward incident or eventuality can cause a lot of emotional and financial stress - especially if you have a family with a higher number of dependents. This is why term insurance is important in such cases, as it provides a lump sum to your dependents, thereby securing their future and lifestyle.

• For term insurance, the premium is only for the sum assured and therefore you can get a huge cover by paying affordable premiums over your selected term period.
• It comes with the clause of an eventuality of the policyholder post which the payout happens and is given to the dependents.
• It is often considered a higher risk investment because there are no returns if you outlive your term period. However, some plans pay the accumulated premiums back to you.
• There are no maturity benefits in case of pure term insurance
• Term insurances are for a limited period as per the term period you choose to pay your premiums.
• A term plan provides a pure life and risk cover and is suitable for everyone - especially those who want to look after their loved ones. It is more of an insurance than an investment

Endowment Life Insurance Plans

What is an Endowment Life Insurance Policy? Endowment Plans have more to do with savings and are often referred to as a good investment tool. They allow you to invest your money in an organised way so that there are good returns in the future. Here are some of the features of these plans -

• The premiums for endowment plans are higher, as you invest your money in stock markets, etc., plus there are loyalty additions as well. As a result, the premiums are higher.
• You can receive the lump sum amount or the amount in installments after you complete your payment tenure or on the policyholder’s death.
• It is a low-risk investment as you will get assured returns.
• Endowment plans come with maturity benefits.
• These are long-term plans that are also known as lifetime plans.
• An endowment plan is a good way to invest and grow money. It acts both as an investment as well as an insurance.

Knowing these basic differences between the two plans most definitely helps in making the right choice regarding which one will suit you and your family more. Financial experts are generally of the opinion that insurance plans should not be mixed with investment plans which is why term insurance is preferred over endowment plans. What matters most in the long run is being secure in terms of finances and family. It all depends on what your priorities are and how you act on them!

- A Consumer Education Initiative series by Kotak Life