All you need to about key differentiators between term and endowment insurance plans

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Insurance is an important instrument for protection against unprecedented events. There are broadly two types of insurance plans offered by most insurance companies – term insurance and endowment insurance.

Both plans provide financial protection to dependents in case of death of policyholder and various tax exemptions.

However, it is important to dig into their individual features to understand which policy will suit your needs.

Term insurance is a pure life insurance policy that does not offer any benefits on maturity. While an endowment plan is a dual benefits scheme that includes insurance and benefits on maturity, which acts as a form of savings for the future. We can understand both these policies better by looking at their features.

Let us begin with premium payments. Term insurance policies provide life coverage at very low premium rates. Endowment plans on the other hand will charge a higher premium for the same coverage.

Assuming you are looking for a cover of Rs 1 crore, then, you will have to pay Rs 9,000 premium for a term plan while Rs 90,000 premium annually for an endowment plan. Both these plans provide various rider options or extra benefits such as waiver of premiums, long-term care, child term, etc. But you will have to pay extra to avail these options.

To put things further into perspective, let’s assume that the maturity period for both the schemes is 30 years. On maturity, that is at the end of 30 years a endowment insurance policy holder will receive a sum assured, while no such benefit is assured to a term insurance policy holder.

For example, if the policyholder pays a premium of Rs. 1 lakh per annum, at maturity he will receive Rs. 40 lakh. The sum assured receivable is non-taxable In this manner, the endowment policy also acts as an instrument for saving.

While you receive a sum assured at the end of the endowment policy term, the premium payments are significantly lower for term insurance for the same life coverage. However, a deep comparative analysis is required to understand which policy benefits you the most in the long run.