Term Policies v/s Endowment Plans

Life insurance provides financial cover for them who have lost their income due to disability, retirement, accidental injury or death. But buying life insurance often involves answering this question: Should I buy term insurance or an endowment plan? Both are life insurance products with a high sum insured. Their benefits may be passed on to the policy holder’s family in case the former passes away while the policy is still active. But these two policies differ in some key areas, as outlined below.

Term Insurance Policy

  • The plan provides coverage for a specific tenure, or term. Once the term is complete, the plan gets terminated at that point.
  • Term Insurance is one of the most affordable life insurance products in India today. The term plan premium is quite low, so practically anyone can afford to buy it. But unlike insurance products with low premiums, the term insurance policy has a high sum assured.
  • The Term Policy does not have a maturity bonus. Hence, if the policyholder outlives the policy term, they do not receive any of the premiums paid. There are no reversionary bonuses entailed in the policy. There is only a death benefit ingrained in the plan, and the policyholder receives tax benefits on the premiums paid.
  • Term Insurance Policy takes care of the policy holder’s family members with a high sum assured pay-out. The money can be used for household expenses, children’s education and wedding, medical costs, repaying unpaid loans, etc.

Endowment Insurance Policy

  • An Endowment policy offers a lump sum benefit on maturity. This payment is known as the maturity bonuses. Some endowment plans also pay reversionary bonuses. In case the policyholder passes away before the maturity of the plan, the entire sum assured is paid to the family members, with the accrued bonuses.
  • The policy has a certain tenure (10 years to 25 years, in most cases), just like the term plan.
  • The Plan offers a sum assured pay-out proportionate with the premium payable.
  • An Endowment Plan gives you the freedom to choose a policy tenure considering your financial goals. It is best suited for those with concrete financial goals with an assigned time frame. For example, if your child will leave for a foreign university in 10 years, you can time the maturity of the endowment plan to coincide with this milestone.
  • The plan pays for a variety of needs, from children’s higher education to set up a retirement nest for yourself and your spouse. Its ‘timed’ nature and maturity benefit can help you achieve important financial goals.
  • This policy is especially useful for senior citizens, who can time the policy maturity to coincide with their retirement date. The monies can help them lead their daily lives without financial pressure when their regular income ceases.

In a nutshell, be it term insurance or an endowment plan, make sure you choose one that best suits the financial and security needs of you and your family.

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