Term Insurance vs. Endowment Policy: Key Differences Explained

What are Term Plans?

Term insurance is a simple form of life insurance that provides higher life coverage at affordable premiums. The primary purpose is to provide financial security to the beneficiaries in the event of the insured individual’s unexpected or untimely demise. However, there are no returns or savings benefits unless you opt for a Return of Premium term plan. Here, if the insured outlives the policy tenure, the premiums paid so far are returned when the policy comes to an end.

Why Choose Term Insurance Plans?

• Here is what a term plan might offer you.
• Premiums are affordable. Term plans are the cheapest form of life insurance.
• Typically, term plans come with a variety of riders to make your base plan more comprehensive and personalised.
• Term insurance plans come with flexible terms that easily range between 5 and 40 years.
• Being life insurance, you can get tax benefits of up to ₹1.5 lakhs against the premiums you pay (u/s 80C). The death benefit received by the nominee is tax-free u/s 10(10D).

What are Endowment Policies?

Endowment policies are also variants of life insurance plans. However, these are designed with two components: safety and rewards. This means life coverage with savings in the form of payouts. These can be availed when your policy ends or matures, or in the event of the untimely demise of the life assured.

Why Choose Endowment Policies?

• Here are some of the benefits of endowment plans. Consider giving it a look.
• Dual advantage in the form of life cover + savings.
• Access to maturity benefit.
• Life cover to financially shield your family and their needs.
• It can help in wealth creation. Promotes savings to help you achieve your long-term goals.
• Tax deductions on the premiums, maturity benefit and death benefit as per the Income Tax Act rules.

Understanding the Difference: Term Plans vs Endowment Plans?

oth the term insurance and endowment plans have their pros and cons. What to choose and what not can be decided once you understand their differences and see what works best for you, your life goals, and requirements.

Here is a table that may help you understand the differences between the two plans.

Term Plans vs Endowment Plans: Which One to Choose?

If you're a beginner, choosing between the two plans, the term plan or the endowment plan, might feel a bit overwhelming. However, remember, there is no best plan, or a plan that fits all. Instead, you may make the right choice based on your purpose of buying the insurance.

Here are some factors to consider when choosing between a term and an endowment plan.

Financial Goals

Be clear about your financial goals and requirements. Once you list that, you may accordingly choose if you simply need life cover, savings, or both.

Affordability

Do not undermine the affordability of your plan. Consider your expenses, and see what suits your budget. For instance, if you're looking for a budget-friendly option, term plans can be a good choice. Term plans are typically more affordable than endowment plans as they do not have a savings component.

Policy Duration

Understand how long you want the cover to be. Term plans can be considered for short-term goals. However, endowment plans can help fulfil long-term plans.

Type of Coverage Required

Consider the type of coverage you need. For instance, if you simply want to protect your family financially, even in your absence, then consider opting for term plans. Alternatively, if you want life cover plus savings, you may consider endowment plans.

Final Word

Having reliable insurance by your side can reduce your stress and financial burden. However, you must make the right choice. Consider giving it some time, and do your research. Understand your primary needs, what you want in a policy, and compare accordingly. With Jio Insurance Broking, you get access to a variety of reputable insurers. Consider reading about them, comparing their plan benefits, and limitations. And finally, you may choose what best suits you and your family.