Understanding The Difference Between Term Insurance And Endowment Insurance
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Both are diametrically opposed offerings, like chalk and cheese. Term insurance is a pure risk cover and a policy that is required for everyone with a dependent who relies on their income. Term insurance coverage of 20 times your annual salary is recommended. If you die while covered by term insurance, your nominee receives the sum assured. Nothing is paid out to you if you survive the policy term. They are by far the most affordable type of insurance.
Endowment Plans, on the other hand, are hybrid plans that combine insurance with investing. You obtain a life insurance policy as well as an investing component. You continue to pay throughout the policy term, and at the end of the term, you receive a maturity amount. Money-Back plans are a type of Endowment plan in which a portion of the benefits is given to you at regular intervals during the policy term.
Difference Between Term Insurance And Endowment Insurance
The five advantages of ULIP plans that make them a safe investment option are listed below:
1. Life Cover
A pure life cover is provided by a term life insurance policy. It's a straightforward life insurance policy that guarantees payment of a sum promised if the policyholder dies during the policy period. There is no maturity gain if he outlives the term.
An endowment plan provides both life insurance and a savings option. In the event of your death, your nominee receives the death benefit. You obtain a maturity benefit if you live longer than the policy period.
2. Price
A term plan is less expensive because it offers no return and just provides risk protection.
An endowment plan, on the other hand, offers a maturity benefit as well as loyalty bonuses. These factors make an endowment policy more appealing.
Also read - Types Of Endowment Plans That Help You Grow Your Savings And Their Benefits
3. Payout Options
On the death of the insured during the policy period, the nominee receives the sum assured in a lump sum, equal installments, or a mix of both. The policyholder can choose between a lump-sum, monthly, or a combination of both payout options based on his or her family's needs.
The payout in an endowment plan is a lump amount either on the policyholder's death during the policy term or as a maturity benefit at the conclusion of the policy period.
4. Aim Of Cover
The coverage goals of the two types of life insurance are vastly different.
Term life insurance is designed to solely provide financial assistance to your beneficiaries in the event of your death. The sum can be used as a supplement to your income to help you manage your household expenses and outstanding EMIs. If you have dependent family members, you must purchase a term insurance policy.
The endowment plan is designed to assist you in saving for your long-term goals. It offers assured profits and meets the requirement for long-term savings.
5. Sum Assured
The sum assured on a term insurance policy is the maximum. This is due to the fact that it only provides risk coverage, which is adequate for your better protection.
The sum assured in an endowment plan is lower than that of term insurance. This is because an endowment plan satisfies the urge for saving. You will receive a lower guaranteed payout, but you will benefit from a maturity advantage.
6. Price
A term plan is less expensive because it offers no return and just provides risk protection.
An endowment plan, on the other hand, offers a maturity benefit as well as loyalty bonuses. These extra features raise the cost of an endowment policy.
Conclusion
The desire to invest and increase your money should not be confused with the necessity for insurance. As a result, an individual should use insurance instruments and endowment plans in accordance with his or her financial objectives. Insurance, according to financial experts, should not be combined with any other financial purpose. As a result, pure insurance products such as term insurance outperform endowment programs
You may also like to read - How Can I Calculate Surrender Value For My Endowment Policy?
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.
