Endowment Plan vs Term Plan - Difference

Endowment Plan vs Term Plan - Difference
Endnotes

Endowment plans are dual utility plans that provide you the benefits of savings and Insurance into one convenient package. Under the terms of the policy, these plans provide additional benefits such as death payments and maturity benefits.

A Term Plan, on the other hand, projects life insurance on the forefront. It provides comprehensive and reasonable coverage for a certain length of time to meet your needs. Term insurance plans require you to pay premiums every year for the duration of the policy.

While both plans function extremely well and can be bought depending upon the needs and investment objective of the investor, here are a few differences between the two.

Endowment Plan vs Term Plan - Difference

Following are some key points of difference between Endowment Plans and Term Plans -

Investment Objective

An endowment plan's foundation is made up of savings and insurance coverage. These programmes combine the advantages of saving with the basic premise of insurance. Endowment plans are designed for investors who want to save for the future and avail guaranteed returns. In the long run, endowment programmes prove to be a successful alternative.

Term plans, on the other hand, lean into a comprehensive protection programme. They provide security to the policyholder for a limited time. In the event of the policyholder's untimely death, term policies pay the sum promised to the nominee/beneficiary as a death benefit.

These plans do not cater to the saving interests of the policyholder.

Tax Benefits

Under Endowment plans, the maturity and death benefits received by your family would be tax exempted.

Term insurance plans might help you save money on taxes. According to the Income Tax Act of 1961, you can deduct up to Rs. 1.5 lakh from your term insurance policy (under Section 80C).

You may also like to read:- Difference Between Endowment Plan and Money Back Plan

Payout Difference

In comparison to term insurance, the sum assured in an endowment plan is lower. This is due to the fact that an endowment plan satisfies the demand to save. You get a reduced guaranteed payout, but you also get a maturity advantage.

A term insurance plan's sum assured is the highest. This is because it simply provides risk coverage, which is sufficient to meet your protection needs.

Additional Benefits

Liquidity Benefits:

In the event of a financial emergency, endowment plans allow for a partial withdrawal of the sum insured amount.

Liquidity is not provided under term insurance plans

Maturity Benefits:

Endowment plans promise guaranteed returns of sum assured on maturity even if the policyholder outlives the policy term.

There are no such provision under term plans

Death Benefits:

Endowment plans offer the sum promised, as well as any accrued bonuses, to the policyholder's specified beneficiaries in the event of his or her death. When the death benefit is paid, the policy is no longer active.

The death benefit received would be Sum Assured less any remaining premiums due in the year of death (if any). Because term insurance has a substantial sum assured, the death benefit is stated to be more than enough to fulfil your family's financial demands.

Affordability of Premium

Endowment plans have a higher premium rate than term plans since they include a savings component in addition to the life insurance protection. These plans also have additional bonuses and riders, resulting in higher premiums.

Premiums paid under term plans are inexpensive and affordable and are ideal for investors who want to save money on their premiums. This section emphasises term plans as a more economical choice because they simply give insurance coverage.

Also Read:- What is an Endowment Insurance Plan?