Before getting into variances between term and endowment plans, let’s get to the core base from where they evolve – LIFE INSURANCE! A life insurance policy is like a give-and-take relationship between you and the insurance company.
You pay them a fixed amount each year. They assure your family with financial protection when you pass away. You shell a little extra money. They shower you with extra life cover in the form of additional benefits. The plans may vary from one insurer to another. But, the basics are parallel among all. Buying a life insurance policy gives you an opportunity to save your dear family from financial losses if any unforeseen event occurs in your life. Make sure you get one. Which one? Our Coverfox advisory team can help you decide which life insurance plan would work best for you.
Types of Life Insurance
1. Term Insurance Plan: For a specific number of years, your family is financially protected if at all you pass away. During that term, if you succumb, your family can claim your death benefit and receive the pre-determined lump sum amount.
2. Endowment Plan: How about a plan that offers Protection cover + Investment! Sounds good?
An endowment plan does exactly that. It works as a protection-cum-investment instrument. Through your critical days, it serves a financial cover tool for your family. Simultaneously, it continues to multiply the money invested for your good days. If you survive the entire term duration of the policy, you can gain back the sum assured amount at the time of maturity.
| Term Insurance | Endowment Plan |
|---|---|
| Covers uncertainties of life | Combines insurance + investment |
| Important financial tool for availing protection | Only for those who want to grow their money along with availing protection |
| Death benefit sum assured is 10-20 times more than your annual income | Maturity benefit sum assured is not much but decently sufficient as investment option |
| No maturity benefit available | Maturity benefit available and paid at end of policy period |
| Perfect for those who have dependents | Perfect for those who have dependents |
| Consists of only death benefit | Consists of both death and maturity benefit |
| Premiums charged are less | Premiums charged are more |
Endowment Plans fulfill your desire to have life cover as well as savings under one plan. It is one of those classic life insurance plans that has been widely purchased. It is more suitable for those with less financial setbacks. If you want death benefits and would love to save and compulsorily reap some survival returns.
Then an endowment plan is perfect for you. But, given the fact that the premiums are high and the sum assured received at the time of death or survival maturity is very minimal, the whole purpose of ‘life cover’ is diminished. Regardless of that, opting for an endowment plan is entirely your preference.
On the contrary, if you have liabilities, huge outstanding amounts, loans, lack of financial health, then opting for a Term Insurance makes sense.
The primary goal of a term plan is to make sure your family gets adequate money to reduce their financial losses once you pass away. If in debts, it is advisable to opt for a pure term plan to ensure your family reaps your death benefits effectively. You care less about receiving investment returns on survival.
If you really wish to grow your investment portfolio, you have several other options – Bank deposits, PPFs, stocks, mutual funds, etc.
Tax Benefits
Term Insurance Plans: It can help you save up on tax. As per [Income tax Act 1961], your term insurance policy can give you tax deductions up to an amount of Rs. 1.5 lakhs (under Section 80C).
Death benefits received by your family would also be tax-free. However, for policies that have been issued before 1st April, 2003, tax benefits cannot be claimed if the premium paid during the term of the policy is more than 20% of sum assured.
Endowment plans: You can avail same tax exemptions as mentioned for term insurance plans. Apart from that, you can get exemptions under Section 10 (10) D for amount received as maturity benefit of your policy.
Conclusion
It is suggested not to mix insurance and investments together. In proportion to the high premiums paid, neither will your death benefit be good enough nor will the investment returns be satisfying.
ENDOWMENT PLAN = Less Dependent Members + Strong financial health + High premiums + Low sum assured on death benefit + Mandatory ROI upon survival.
TERM INSURANCE PLAN = More Dependent Members + Loans and debts + Low Premiums + High Death Benefit + ROI upon survival not needed
The CHOICE is all yours!
