Term Insurance vs Endowment Policy – Which is Better?

When it comes to life insurance policies, most individuals know that both term insurance and endowment policy offer financial protection and some additional monetary gains. For a layperson, they might appear to be the same. But, both these policies cater to specific individual needs.

Individuals interested in buying a life insurance policy from these two sub-types must know the difference between these two policies to be able to make the right choice.

About Term Insurance

Term insurance is one of the most well-known plans among different types of insurance policies. It is an insurance product that provides life coverage to a policyholder for an extended timeframe. If a policyholder dies during the policy term, his/her nominees receive a death benefit.

Similar to other insurance plans, a policyholder has to pay periodical premium payments to keep this plan active. The sum assured is decided when one purchases this insurance policy. Moreover, it is crucial to note that term insurance policies do not offer survival benefits if the insured person survives the policy period.

About Endowment Policy

An endowment policy offers dual benefits of investment and insurance. Specifically, an individual makes periodical premium payments under an endowment policy and receives a lump sum amount when this policy matures. Note that this lump sum amount is applicable only if the policyholder survives throughout the policy term.

In case of a policyholder’s death, the insurance coverage comes to the rescue. Thus, his/her nominees receive the sum assured and additional bonuses as a death benefit.

Differences between Term Insurance and Endowment Policy

Term insurance and endowment policies differ in various ways, as mentioned below:

1. Policy coverage

A term insurance plan acts like a traditional life insurance plan that pays a sum assured on a policyholder’s death to his/her nominees. If the policyholder outlives the timeframe, then there are no benefits.

On the other hand, an endowment policy is a life cover plus investment option. Here, the nominee receives a death benefit if the policyholder dies during the policy term. If the policyholder outlives the period, he/she receives a maturity benefit.

2. Premium cost

Typically, an endowment policy offers maturity benefits plus additional bonuses. These additional features make it an ideal investment option for policyholders to achieve their long-term financial goals. Thus, the premium of an endowment policy is generally on the expensive side.

Meanwhile, a term insurance plan only extends risk coverage to a policyholder and his/her nominees. Thus, the premium cost is comparatively lower.

3. Policy objective

Term life insurance policy focuses on providing financial coverage to a policyholder’s nominees in case of his/her death. This corpus can be utilized to meet the financial needs of a household.

On the other hand, an endowment plan aims at providing wealth creation coupled with insurance cover to a policyholder. It provides guaranteed returns at no risk that facilitates future savings.

4. Pay-out options

In term insurance, the nominees get the sum assured corpus in equal installments or lump sum, or a combination of both upon a policyholder’s death. The insured person has the option to choose the pay-out option as per his/her family’s needs while buying this policy.

Individuals receive a lump sum amount on policy maturity in an endowment plan. This amount also contains additional bonuses. On the policyholder’s death, his/her nominees receive a death benefit, as mentioned in the policy document.

As seen from the above pointers, both these insurance policies differ a lot. However, the choice of term insurance vs endowment plan should not be challenging. An endowment plan is an ideal option for individuals who want to save a substantial corpus for their future. On the other hand, individuals who wish to secure their family’s financial future by paying lower premiums can choose term life insurance policies.

One can thoroughly compare these plans and purchase a life cover using offline methods or considering digital currency that best suits their requirements.

It is essential for individuals to assess the differences between term life insurance and an endowment policy before purchasing a life cover. Additionally, they must not forget to read the policy terms before moving ahead.