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How Does An Endowment Plan Differ From A Term Plan?

By Author: Edelweiss
Total Articles: 8

Both term insurance plans and endowment policies are popular insurance products and are availed by many people looking for insurance plans. This article presents the critical details of these insurance plans and how they differ from each other.

What is a term plan?

A term insurance plan is merely a life protection plan, meaning that it provides the insured person with a life cover if the insured person meets with an unfortunate death during the policy term (the period in which the policy is active). The beneficiaries, in this case, will receive the sum assured/death benefits.

Why purchase a term plan?

The sudden demise of an earning member of a family not only creates an emotional impact but also causes a financial effect, which may be quite severe, to the remaining family members. This situation is made worse if the suddenly departed earning member was the sole breadwinner of the family since his/her dependents will have to face the financial burdens without a steady income, such as household expenses, repayment of loans, credit card EMIs, utility bills, and kid’s education fees.

However, if the breadwinner had purchased a term plan, the nominee would have received from the insurance company the sum assured, which can provide monetary support to the remaining family members. Since a term plan offers protection only till the policy term, if the policy term expires and the policyholder is still alive, no benefit will be vailed from the term policy. Hence, it is recommended that people opt for a more extended life cover, for instance up to the age of 80, so that they can live a stress-free life and death.

What is endowment insurance?

An endowment insurance plan or savings plan fulfills needs related to savings and protection. In a savings plan or endowment plan, the insured person receives both maturity and death benefits; this means that the person gets a sum assured on maturity and the nominee of the insured person also receives a death benefit in case the insured person dies suddenly during the policy term. There are different types of endowment policies, and it is best that one chooses the best endowment policy after looking at the various options available in the market. However, it should be noted that the death benefit offered in a savings plan or endowment life insurance is lesser than that what would be provided by a pure term plan.

However, when choosing between the various type of endowment policies and a term insurance plans, it is best to evaluate the offering and benefits of the product, along with one’s financial capacity and needs, to make an informed choice.

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