A life insurance policy is a contract between the insured and the insurer, where the insurer agrees to pay a sum of money called the death benefit to the nominee of the insured. To buy the best life insurance, it is necessary to compare different types of life insurance policies and choose what best suits your needs. You should look for the best coverage for your needs and budget, as well as other features such as term lengths, premiums, and deductibles.
Endowment life insurance and term life insurance are two different types of life insurance policies. It is important to compare these two types of life insurance policies before buying one. Comparing two life insurance policies is a difficult task because of the vast number of options available. This article will provide you with a guideline on how to do it.
What is Term Life Insurance?
The term insurance policy as the name suggests is given for a particular period of a term such as 5 years, 10 years, and so on depending on the requirement of the customer. The policyholder is covered against death and or disability within the term as mentioned in the policy copy. If the policyholder survives the term, no survival benefit in term insurance would be provided to the policyholder.
In the event of the death of the policyholder, the sum assured is paid to the nominee or legal heir as a lump sum or in installments depending on the option selected by the policyholder at the time of purchasing the policy. The most preferred option of payout is the lump sum option by the policyholders whereas some customers prefer installment payouts that can cover the monthly expenses of the family after the death of the policyholder.
The pure-term insurance policy covers only the death of the policyholder within the term mentioned in the policy. Under the term insurance policy, coverage can be extended to disability and cancer treatment by opting for riders after paying the extra premium payment with the base term insurance policy.
Features and Benefits of Term Insurance Policy
- Term insurance plans are known for providing high insurance coverage at cheap term life insurance online premiums. They help you secure the future of your family with amounts as high as Rs. 10 Crore or more against nominal premium amounts. Life insurance Term plans affordability, makes them a preferred choice.
- The term insurance calculator tool provides to choose the best term plan offered by companies on a single platform easily without switching to different sites.
- The main purpose of term insurance is financial protection. If the sudden demise of the insured can put the family in peril. With no regular income, the family may soon face a financial crisis. Having a term insurance policy helps your family come out of any financial crisis after your sudden demise.
- Under term insurance policies three different premium options are available which are Regular, Limited, and Single Pay. You can choose to pay a premium on a yearly, half-yearly, quarterly, or monthly basis.
- Term insurance offers tax dual benefits under prevailing laws as per Income Tax Act, 1961. You can avail of a deduction of up to Rs.1.5 lakh under Section 80C of the Income Tax Act. The maturity insurance plans may be completely tax-free. This term life insurance tax benefit is under Section 10(10D) of the Income Tax Act.
- Riders may include coverage against personal accidents, critical illness, loss of income due to a disability, etc. Can be added to all types of term insurance policies.
What is Endowment Life Insurance?
An Endowment policy is a life insurance plan that apart from covering the life of the insured against uncertain death, helps to save a certain amount of money regularly over some time. In short, an endowment policy consists of both Insurance coverage and the Savings option. This amount saved under the endowment life insurance policy is known as the maturity amount and is paid to the policyholder in case he/she survives the policy period or dies during the policy period.
This savings component is paid to the nominee in case of the death of the policyholder or to the policyholder in case of maturity if the policy is a survival benefit and can be used for Children’s education, Marriage expense, or purchasing a home. Thus any term insurance policy with a saving component and insurance component can be considered an endowment policy.
Types of endowment plans: they are two types- with profit and without profit. One can choose the plan depending on the requirement and future planning such as children's education expenses, marriage expenses, etc. Once upon a time, endowment plans were the most preferred option by the people, and also many cases of mis-selling were reported by common people against the insurance agents.
Features and Benefits of Endowment Life Insurance Policy
- An endowment policy allows you to save more for the future. In case of the demise of the insured, the beneficiary/nominee of the policy gets the sum assured along with bonuses. Also, the insured is allowed to get the sum assured if he/she outlives the policy.
- An endowment policy helps build a corpus for the future and provides financial protection to your family. The payout for survival benefit and death benefit of an endowment plan is higher than that of a pure life insurance policy i.e. Term Plans.
- An endowment policy is your low-risk investment avenue. In comparison to Mutual Funds and ULIPs, your life insurance endowment policy has a lower risk because your money doesn't directly go into equity funds or the stock market.
- You can enhance the base plan to get additional insurance against critical illnesses, disability, and accidental death. This additional bonus coverage is called riders. You will have to pay some extra amount over and above your base premium to add riders to your base plan.
- The policyholder gets a maturity benefit upon the end of the term. The policyholder receives a sum assured and a bonus for the duration of the plan. The sum assured from the maturity benefit is exempted from tax up to a limit.
- The policyholder is entitled to get tax exemption on premium payments, maturity, and final payouts under section 80c and section 10(10d) of the income tax act, 1961.
Difference between Endowment vs Term Life Insurance
Here are some of the key parameters based on which they differ from each other:
|
Endowment Life Insurance |
Term Life Insurance |
| Type of Plan |
An endowment policy is a type of life insurance policy. It consists of both Insurance coverage and the savings option. |
A term life insurance policy provides coverage for a specific period. |
| Coverage |
Combine insurance and investment |
Covers uncertainties |
| Price |
Higher as compared to term life insurance |
Lower as compared to endowment life insurance |
| Plans |
- With-Profit Insurance
- Without-Profit Insurance
|
- Return of Premium Term Insurance
- Increasing Term Insurance Plan
- Decreasing Term Insurance Plan
- Level Term Insurance Plan
- Critical Illness Term Plan
- Waiver of Premium Plan
- Accidental Disability Plan
|
| Add-on Available |
Yes |
Yes |
| Best Suited for |
Investment Tool |
Financial Tool |
| Maturity Benefits |
There is a Maturity Benefit available |
No Maturity Benefits |
| Tax Benefits |
Tax benefits under section 80C and benefits under section 10(10D) of the Income Tax Act, 1961. |
Tax benefits under section 80C and benefits under section 10(10D) of the Income Tax Act, 1961. |
Conclusion
Term Insurance is a type of life insurance that covers a policyholder for a certain number of years. Endowment Insurance, on the other hand, is a type of life insurance that pays out death benefits and maturity benefits. Endowment Insurance is more expensive than Term Insurance
Choosing the right life insurance plan is not an easy task. Many factors need to be considered before making a decision. The first thing you should do is compare the prices of different companies and find out what they offer in terms of coverage and benefits.
To make a better decision, you should make sure that you have all the information about life insurance plans available in the market. However, this decision has become much easier with the help of PolicyBachat. To buy the best life insurance policy compare life insurance quotes and get the right life insurance policy.