Both term insurance as well as endowment plan offers a life cover. However, there are some core differences between the two. You will be able to choose the right plan for yourself once you identify the differences and understand how each plan works. In this article we list the differences between term insurance and endowment insurance. Take a look and then choose the right kind of life insurance cover for yourself.
Difference between Endowment Insurance and Term Insurance
Here are the main points of difference between the two:
Cover:
A term life insurance plan offers a pure life cover. It is a straightforward life insurance plan that promises to pay a sum assured if the policyholder dies within the policy period. If he outlives the term, there is no maturity benefit.
An endowment plan offers a life cover as well as an investment option. A part of the premium you pay gets locked in a life fund. If you die, your nominee gets the death benefit. The other part is invested and you earn a dividend out of it. If you outlive the policy period, you get a maturity benefit.
Price:
Since a term plan doesn’t offer any return on the premium you pay, it is less expensive. You just pay for a life cover.
On the other hand, the endowment plan promises a maturity benefit, along with the dividends you earn. This adds additional features to the endowment policy, making it more expensivethan a pure term insurance plan.
Sum assured:
The sum assured in a term insurance plan is close to 20 times your annual salary. The sum assured is therefore among the highest in term insurance.
The sum assured is definitely not as high in an endowment plan as a term insurance plan. You get a lower sum assured but you are also offered a maturity benefit and a return of the premium.
Aim of cover:
The two types of life insurance have two very different aims of cover.
Term life insurance aims at only providing financial help to your nominees if you die. The amount can work as an income replacement or can be used as to clear out any pending loans. It is absolutely essential to buy a term insurance plan if you have dependent family members.
The endowment plan aims to offer you a tool through which you can insure your life as well as invest your money.
Ease of access:
The term insurance plans are slightly easier to get as compared to the endowment plans. You can easily buy a term plan online instantly. Most of the times, the insurance provider doesn’t even ask you to undergo a medical test.
However, for an endowment plan, the process isn’t always so simple. You will in all probability be asked to undergo a health assessment and the policy will only be issued thereafter.
Payout options:
The nominee may receive the sum assured in lump sum, or in equal installments or a combination of both on the death of the insured during the policy period in a term insurance plan.Term insurance plan is a type of life insurance plan where the nominee of the insured gets the sum assured if the insured dies within the policy period.
In an endowment plan, insured is not eligible for a lump sum amount during the end of the policy term. Endowment Plan is a type of life insurance plan where the insured person gets certain percentage of the sum assured in regular intervals.
Conclusion
So as you can clearly see from the points mentioned above, there are some core points of difference between term insurance and endowment insurance. Both have some very good benefits but their basic targets are different. So you need to assess your insurance requirements and see which kind of life insurance is best suited for you. Once that is done, go ahead and buy a term plan, an endowment plan or both.