What To Choose: Term Insurance Or Endowment Plan?

The increased demand for insurance coverage has been influenced by an uncertain future and a decrease in life expectancy. They not only assist you in achieving your financial objectives, but they also provide a safety net for your family members in the event of a breadwinner's absence. To ensure long-term safety and stability, it's only prudent to buy a life insurance policy. There are two primary alternatives when it comes to selecting the best product for your family: term insurance and endowment plans.

Term insurance programs provide temporary financial protection. The policyholder's family will be entitled to a death benefit equal to the sum assured at the start of the policy agreement in the case of the policyholder's death. An endowment plan, on the other hand, is a protection and investment plan that provides a family with a safety net as well as a financial asset. 

What To Choose: Term Insurance Or Endowment Plan?

The following are the key distinctions between term insurance and an endowment plan:

1. Premium

Term life insurance is the most cost-effective form of life insurance for the average person. Term protection with a large sum assured can be obtained for a nominal cost. In India, the premiums for endowment plans are slightly higher than those for term protection policies.

2. Returns

An endowment plan combines investment and protection, whereas a term plan is an unfiltered death mitigation plan that provides straightforward life cover. As a result, the latter allows you to save money in the future.

A term plan, on the other hand, does not save money in this way. The beneficiaries of a term plan will only get the specified death benefit if their loved one dies. When the endowment policy's term expires, you'll receive the total amount you've saved.

3. Protection

If the assured dies within the specified time limit, a term insurance plan commits to pay the sum assured. There is no maturity benefit if they don't. Just like a savings plan, an endowment plan provides day-to-day life insurance. In the event that the policyholder dies, they will get a death benefit. They receive a maturity bonus if they survive the specified period.

4. Tax Benefits

Under Section 80C of the old Income Tax Code, you can recover the taxes you paid toward your term protection plan. Similarly, under Section 10(10D) of the Income Tax Act of 1961, the maturity and death benefits paid are tax-free. An extra sum can be provided for allowances under Section 80D in the case of a critical sickness benefit. The endowment policy premium is deductible under Section 80C of the previous tax code.

5. Benefits Upon Maturity

A term protection plan provides no maturity benefits even in the best-case situation. Are the charges reimbursed towards the promised sum if you choose a premium return policy? If the policyholder lives longer than the specified time, the assurer is liable for reimbursing the charges. Their maturity benefit is then equal to the sum. At the end of the policy time, an endowment plan provides maturity benefits.

6. What Happens If The Policyholder Passes Away?

Term protection provides bereavement benefits to insurance beneficiaries in the event of the policyholder's untimely death. Because the sum guaranteed in term protection is higher, the amount received should be sufficient to satisfy the family's financial obligations. Endowment plans also include death benefits. The sum assured, on the other hand, does not have to be sufficient to fulfill the family's financial needs.

Conclusion

The goal of the insurance plans is to keep your family protected when they need it most. As a result, this should not be your exclusive source of investment or savings. However, both term and endowment insurance policies must be based on the policyholder's financial goals.

Market experts feel that insurance should not be mingled with other investments, giving unfiltered products like term insurance plans an advantage over endowment plans.

Also read - Advantages and Disadvantages of Endowment Plan

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.