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Terms Insurance V/s Endowment Insurance - Know the Objectives and When to Take Term Insurance / Endowment Insurance



What is Term Insurance?

Term insurance is a type of life insurance that provides coverage for a specific term or period. Unlike permanent life insurance, such as whole life or universal life, which provides coverage for the entire lifetime of the insured, term insurance offers protection for a predetermined period, typically ranging from 10 to 30 years.


What is Endowment Insurance?

Endowment insurance is a type of life insurance that combines a death benefit with a savings or investment component. Unlike term insurance, which provides coverage for a specific term, endowment insurance policies typically have a maturity date. If the policyholder survives until the maturity date, they receive a lump sum payment known as the endowment maturity amount. In the event of the policyholder's death before the maturity date, the death benefit is paid to the beneficiaries.


Difference between Term insurance and Endowment Insurance



Basis

Term Insurance

Endowment insurance

Coverage Period

Term insurance covers a specific term or duration, after which the policy expires. If the insured individual dies during the term, the death benefit is paid to the beneficiaries. If the insured survives the term, there is no payout.

The coverage period for an endowment plan lasts until the policy's maturity date, which is a specified number of years chosen at the time of purchase. If the policyholder survives until this date, they receive a lump sum payment. If they pass away during this period, beneficiaries receive the death benefit.

Purpose

Sole purpose: Term insurance is commonly used to provide financial protection during specific periods of life when the need for coverage is high, such as raising children, paying off a mortgage, or supporting a family.

Dual purpose: The purpose of an endowment plan is to provide life insurance coverage and a savings component. If the policyholder survives until the maturity date, they receive a lump sum payment, serving both protection and savings goals.

Cash value

No Cash Value: Unlike some permanent life insurance policies, term insurance does not accumulate cash value over time. It is designed purely for death benefit protection.

Cash Value Accumulation: Endowment policies accumulate a cash value over time. This cash value grows through the investment component of the policy, typically in a conservative manner, such as through fixed-interest investments.

Premiums

Affordable premium rates

Comparatively Higher premium rates

Affordability

More affordable: - term insurance is often more affordable than permanent life insurance, making it a popular choice for individuals seeking high coverage amounts at a lower cost.

Less affordable: The premiums for endowment plans tend to be higher because they include both the cost of insurance coverage and contributions to the savings or investment component that builds the cash value.

death benefits

High: The death benefit of term insurance is typically higher compared to that of endowment plans for the same premium amount. Term insurance is designed to provide a pure death benefit without a savings or investment component, so a larger portion of the premium goes towards the coverage amount

Comparatively Low: endowment plans allocate a portion of the premium to both insurance coverage and savings, which may result in a lower death benefit relative to the premium paid

Maturity benefits

No maturity: Term insurance typically does not have a maturity benefit. It is designed purely to provide a death benefit during the specified term of the policy.

Offer Maturity: endowment plans offer a maturity benefit. If the policyholder survives until the maturity date, they receive a lump sum payment known as the endowment maturity amount

withdrawal

You cannot withdraw money from term insurance

You can withdraw money from an endowment plan in case of an emergency, after a few years.

Renewability and Convertibility

Some term insurance policies may offer the option to renew the policy at the end of the term, often at a higher premium. Additionally, some policies may have a convertibility feature, allowing the policyholder to convert the term policy into a permanent life insurance policy without undergoing a new medical examination.

Renewability is uncommon in traditional endowment plans; they usually have a fixed term or cover the insured's lifetime. Convertibility, allowing a change in policy type, is not standard for most endowment plans. Policyholders should check their specific policy terms.


Practical understand difference in cost of Term Life Insurance and Endowment Insurance is as follows:


Term Insurance for 25 Years - Age - 30 Years - Sum Insured Rs 10 Lakhs :

LIC Sarel Jeevan Bima - Cost Rs. 4,336 Annual Premium


Endowment Insurance for 25 Years - Age - 30 Years - Sum Insured Rs 10 Lakhs :

LIC Endowment Plan - Costs Rs. 39,440 Annual Premium


*Above premium cost are indicative for understanding and may differ in actuals


Conclusion:

Thus, it is to be understood that both type of insurance plans are with different objectives and Term Insurance is plain vanilla insurance that provides maximum security in uncertain events and Endowment Insurance provide security but of lower amount as compared to term insurance but includes benefits of earning returns on premiums paid as investment


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