Term life vs. endowment plans, which of these life insurance policies is best for you?
Well, think about your financial goal. What do you want – after-death benefits or both life cover and benefits of investment? When buying a life policy, it is best first to understand why you need it in the first place. Take a look at your goals and objectives long before you even approach the insurance company or agent.
So, term life vs. endowment plans.
In terms of life insurance, most people suffer from a dilemma. They are aware that both insurance packages provide a life cover but can’t tell which suits their situation.
Term life plans satisfy the need for protection, while endowment plans provide the protection of a life policy with a saving option.
Knowing the differences and doing a comparative analysis between term life and endowment plan will make you confident in choosing the right one.
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Difference Between Life Term and Endowment Plan
Term life insurance provides life coverage for a certain period and is necessary for dependents relying on your income—some last for 10 years, others 15 years. The keyword is TERM, meaning a limited time, unlike a whole life policy.
If you pass away during the policy tenure, your dependents or nominees will get a lump sum amount as assured. Such a payment can go a long way to cushion your beneficiaries against the loss of your income when you are no longer there.
However, if you survive the policy, you and your beneficiaries will not receive a payout.
That might sound like a bad thing. But look at it this way, life is all about risk, and risk management is a significant component of planning your finances. So why not manage the risk of you passing away by providing your beneficiaries with a payout that will cushion them against financial struggles.
Besides, term life policies are pretty affordable compared to whole life and endowment plans.
Read more about This is What Happens If You Outlive Term Insurance
An endowment plan, on the other hand, comes with a combination of insurance and investment. If you pass away before your policy matures, your beneficiaries will receive a lumpsum payout. And, if you survive your policy, you still get the payout.
This insurance has variations, with some of the endowment plans sending you some benefits during the policy.
However, the insurance cover is not higher than other policies, even term life. Also, the premiums are expensive and with low returns.
How Much You Get
The lump-sum payout is higher in a term life policy, whereas the amount is less for an endowment plan due to additional benefits. Thus, the insurant needs to pay higher premiums in endowment whereas fewer premiums in the term life policy.
If you have already talked to a few insurance agents, you know they are interested in endowment plans. In addition, they will make you think of maturity benefits after the insurance period.
A term life insurance provides life coverage at a lower premium rate than the endowment plans, where you will be charged higher premiums. However, if you include more options in this plan, the policy will also have more charges. Hence you can afford a term plan than an endowment plan easily.
Death and Maturity Benefits
Do you get any maturity if you outlive the insurance period? If the insurant survives during the policy period in term life, they do not receive anything. However, the nominees get a lump sum after the policy holder’s demise if they die within the policy period.
With the endowment plan, the family will get benefits assured either after the policyholder’s death during the policy period or after the expiry of the policy as a maturity.
Bereavement benefits are enough to cover the family’s financial liabilities in term life insurance. However, in endowment plans, the benefits are not necessarily enough to meet the family’s requirements.
Insurance policy is essentially financial planning for individuals concerned for their dependents if they pass away suddenly. From that thought, you need to set up your insurance policy with a product that protects your beneficiaries. Term insurance offers life protection during the policy period. If you pass within a specified time, your family will get a lump sum amount for upcoming days. If you outlive the specified period, you do not get anything.
An endowment plan differs a little bit in that it offers saving and investment benefits as well. Whether you survive or not, you get maturity benefits. You can even opt for interval benefits if you want. But it is costly. The premiums for the endowment plan are higher than those for term life insurance. On the other hand, term life is more affordable than an endowment plan due to the additional benefits of the latter.
Term Life vs. Endowment Plan: Which One Should You Choose
For a healthy and modern life, financial planning is an utmost necessity. But, if you want to invest and grow your money, you should never mix your investment goals with insurance. In fact, experts recommend that you never combine these two. Instead, buy a life policy as an insurance product and invest your money with assets like bonds and securities, not one with a mix of insurance.
Endowment plans charge higher premiums because insurance companies invest policyholders’ money in different financial instruments and the stock market. This plan sets the premiums rates to ensure the insurance and substantial benefits for you. This plan also deducts mortality and other charges from time to time. You will get the amount that remains upon maturity of the policy.
If you want life cover or protection, life term insurance is the viable and unfiltered option for you at a lower premium. Look for if the insurance company has more variations in term life policy like monthly income payouts, discounted premium rates, and more.
If you are well-established and your family is financially sound even after your demise, you can think about endowment plans. A term plan will not make much difference if you survive the policy tenure. You may want to go for endowment plans as it offers maturity benefits as an option. However, remember that you should not mix insurance with your financial goals. There are better financial instruments for investment purposes.
We care about our family. We do not want to keep our family in uncertainty. All of us want to build a promising future for our dear ones. Insurance policies act as a safety net for your family in the absence of your existence. It is advisable to ensure this safety net and security considering all the available options open to you. When choosing a term life vs. endowment plan, go for the right one considering your financial goals and affordability. You may talk to a licensed financial advisor to learn more, and then you can decide.