Difference between Term Plan vs Endowment Plan - Which One You Should Opt?

What Is Endowment Insurance?

What is Endowment Insurance?

Difference Between Endowment Plan and Term Plan 

The difference between term policy and endowment policy is as follows:

Parameters Term Insurance Policy Endowment Insurance Policy
Type of Plan It offers financial protection for your family in case of your untimely demise. It offers both insurance and investment opportunities.
Cost of Premium Affordable premiums. High premiums.
Ideal for Essential for almost everyone. A good option for individuals looking for both investment and insurance.
Sum Assured You can go for a sum which is about 15 to 20 times your annual income, to ensure sufficient coverage for your family. You get a higher sum assured for a given amount of premium. If you opt for a higher sum assured, you will have to pay much higher premiums as compared to term plans, that can disrupt your budget.
Maturity Benefit Not available with term plans except for the Term Plans with Return of Premium. Available at the end of the policy term.
Loan Against Policy You cannot apply for a loan against this policy. You can get a loan against this policy when the policy has achieved the surrender value.
Liquidity Term insurance does not offer any liquidity except for some specific plans that offer return of premium. Your nominee can only receive sum assured after your death. In terms of liquidity, you can either take a loan against your policy or, in extreme financial emergencies, can also surrender the policy to withdraw your investment as per the terms and conditions of your policy.
Payout Options You can customise the payout in small instalments to maintain a regular inflow of cash. You can receive the entire money on maturity of the policy, or your nominee can receive it on your untimely demise.

While you must know the difference between endowment plan and term plan, there are certain other factors that you must consider to make the right choice. 

Things to Consider Before Deciding Between Term Insurance and Endowment Policy

Frequently Asked Questions

What Are the Advantages of a Term Insurance Policy? up-arrow

The advantages of a term insurance policy are as follows:

  • Substantial coverage at affordable premiums.

  • Multiple payout options for death benefits.

  • Income tax benefits on premiums and payouts.

  • Availability of riders.

What Are the Disadvantages of a Term Insurance Policy? up-arrow

Below are some disadvantages of term insurance policy:

  • You cannot withdraw money in case of emergencies.

  • It will not help you in wealth creation.

  • You cannot use the money to meet specific financial goals. 

What are the Advantages of an Endowment Insurance Policy? up-arrow

The advantages of an endowment policy are as follows:

  • It is a low-risk investment and provides assured returns.

  • You can avail tax benefits, maturity benefits and death benefits.

  • Helps in building a savings fund to meet future goals. 

What are the Disadvantages of an Endowment Insurance Policy? up-arrow

Below are some disadvantages of term insurance policy:

  • Expensive policy premiums. 

  • Lower returns as compared to other pure investment options.

  • Lower cash surrender values in case of surrender. 

  • It can be complex at times.