Should I Buy An Endowment Or Term Plan?

They are distinguished by their respective purposes, which are the most important factor. While term plans are ideal for protecting beneficiaries financially, endowment plans serve as an insurance vehicle. Investing plans that help create a savings account for future use are available. Even if the policyholder survives the insurance term, they will get the sum assured at maturity. Plans with a fixed maturity date do not offer maturity advantages.

Endowment plans and term insurances have major variations, which we've outlined to assist you make an informed decision.

Comparison Between Term Plan Vs Endowment Plans

Based on several insurance parameters, the following is a comparison between Term and Endowment Plans:

1. Plan's Objective

Investing in endowment plans is a way to build a safety net over the long term. These plans extend the basic concept of insurance plans by allowing for savings. Investors who enter the insurance market with a goal to save for the future are targeted by endowment plans.
Long-term, endowment programmes are a successful option.

As opposed to term insurance plans, which provide protection for a short time, Term plans pay a death benefit to the nominee/beneficiary in the event of the policyholder's untimely death.
This type of plan does not allow for saving and is therefore suited only for investors who are looking for life insurance to protect their families from death risks covered by term plans, as opposed to endowment plans.

2. Based On Returns

Endowment plans combine investing and life insurance, whereas term plans are purely death mitigation strategies. A future-oriented plan allows you to set aside money.

A term plan does not offer such savings opportunities. After purchasing a term plan, the beneficiaries will only be able to collect on their death benefit if their loved one passes away first. If you have an endowment policy, you will receive the entire corpus that you have saved over the course of your life.

3. Premium Rates

Plans with endowments have higher premiums because they include a savings component in addition to the life insurance coverage. Aside from bonuses and riders, the premium prices for these plans are also higher.

Terms are the least expensive life insurance plans, making them a good choice for investors who want to pay modest premiums. As a result of the fact that term plans only provide insurance coverage, they are a more affordable alternative.

4. Benefits From Taxation

Section 80C of the old Income Tax act allows you to deduct the taxes paid on a term protection plan. Similarly, Section 10(10D) of the Income Tax Act of 1961 exempts the maturity and death benefits received from taxation. Benefits under Section 80D can be supplemented in the case of a critical sickness benefit by an additional payment. Section 80C of the previous income tax code allows you to claim the premium you paid for the endowment policy as a tax deduction.

Conclusion

As you can see from the reasons listed above, term insurance and endowment insurance have some fundamental differences. Both have their advantages, but the demands they satisfy are different, and investment should be made in accordance with that.

Must Read: How A Saving Plan Like Endowment Helps You Meet Your Financial Objectives?

Term Insurance V/S Endowment Policy: Which is better?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.