A Term Insurance is a pure life insurance coverage plan that provides your family with financial protection amidst the uncertainties of life. According to the Term Insurance offered by various banks in India,
the coverage amount assured by the insurer is paid to the nominee assigned in the event of the insured’s death.
An Endowment Plan is not entirely different to the Term Insurance. While it does also cover the risk of premature death during the policy term, the main aim is to create a sufficient retirement corpus for individuals and their families to live stress-free after their professional working days are over.
In simple terms, an Endowment Plan doesn’t just protect against unforeseen circumstances; it gives you strong enough savings. Similar to the term “insurance,” the benefit is paid either after death or upon maturity, whichever occurs first.
“In a nutshell, one key differentiator between a term and endowment plan is that an endowment policy offers the benefit to save for the future and create wealth. While a term plan acts as an income replacement option for one’s loved ones, in case something untoward happens to the life insured. It is because both of them cater to two distinctive financial needs of an individual,” said Anil Kumar Singh, chief actuarial officer, Aditya Birla Sun Life Insurance, as quoted by CNBC.
For Singh, individuals are best advised to invest in term insurance and endowment plans, both to serve the dual benefit. Whether it is to protect their dear ones from unforeseen circumstances with a strong enough life coverage plan or to accumulate wealth. A term insurance should be purchased not long after an individual starts earning. An endowment plan can help them take a disciplined route towards savings later on.
“An endowment plan can come in handy to meet a future financial goal. Besides, it can help in building a corpus for meeting an individual’s long-term financial needs,” he said.
Both term insurance and endowment plans are handy, but term insurance comes with the advantage of low premiums to build a high sum assured amount. In contrast, endowment plans have a higher premium involved to provide the insurer with significant savings in the future.
However, according to Turtlemint co-founder Dhirendra Mahyavanshi, endowment plans have the option of bonus, guaranteed additions, or loyalty additions to provide a return on the investment. Apart from that, endowment plans have a surrender value as well as a paid-up value and therefore, offer a policy loan facility as well. No such benefits are available to insurers in term plans, which focus primarily on the risk of premature death.
A variant of the term insurance called Term Plan with Return of Premium Option (TROP) provides similar benefits to an endowment strategy, with the total premium during the policy tenure returned to the policyholder on maturity, if the life insured survives for the entire policy tenure.
