When you begin the journey of saving and investing, you will see various financial plans and products available. Two popular investment plans in the market are term insurance and endowment plans. Term insurance is a pure protection plan that provides life insurance coverage to the family of the investor on their demise. An endowment plan is an insurance cum investment plan that offers the dual advantages of income growth and life insurance coverage.
Endowment plans help create a considerable corpus, lesser than market-linked plans but substantial enough to fulfil long-term goals. Both term plans and endowment plans are not risky and give what’s promised under the investment plan. If you are confused about choosing an endowment plan vs term plan, here is a table explaining the difference between a term plan and an endowment plan.
| Term insurance plan | Endowment plan | |
|---|---|---|
| Type of investment | Life insurance | Insurance + wealth creation |
| Suitable for | Sole or co-income earners looking to support a family in their absence caused by death. | Investors looking to save and grow their wealth along with protecting their family with life insurance. |
| Premium allocation | The premiums paid go towards providing life insurance protection in the form of a death benefit to the family of the policyholder. | A percentage of premiums gets invested into paying the policyholder a maturity amount at the end of the endowment plan. The remaining goes into providing life insurance protection. |
| Returns yielded | There are no returns yielded in a term insurance plan because it is a pure protection plan. There is a death benefit that the policyholder’s chosen family/ nominees receive. | The returns yielded depend on the interest rate of the endowment plan. The policyholder receives it as a lump sum or in periodic instalments. |
| Maturity benefits | A maturity benefit is a sum received by the policyholder at the end of an investment plan tenure. There are no maturity benefits in a term plan because the only coverage promised is a death benefit. However, term plans have a return of premium option, where you get back all the premiums paid by you at the end of the term plan. | Endowment plans do have a maturity benefit which the policyholder receives once the term of the endowment plan is over. |
| Tenure | The tenure of a term insurance plan ranges even up to 30 to 40 years. | The tenure of an endowment plan can go up to 20 to 25 years. The longer you keep an endowment plan, the higher returns you can accumulate. |
| Endowment plan vs term plan - Premium price | The premium rates of a term plan are lower because it has only a single function of providing life insurance protection. | The premium rates of endowment plans are higher than term plans. Because endowment plans offer the twin benefits of life insurance and goal-oriented investment, policyholders have to pay more premiums. |
| Term insurance vs endowment - Ideal for which investors | A term insurance plan is ideal for investors whose main goal is to protect their loved ones in their permanent absence. | An endowment plan is ideal for investors who want to achieve two goals at the same time – savings + wealth creation and life insurance protection. |
| Tax benefits | Term insurance has tax benefits per the Income Tax Act, 1961. U/s 10(10)D, the death benefit under a term plan is exempt from tax deductions. U/s 80C, you can claim tax refunds from the premiums paid towards the term plan up to ₹1,50,000 in a year. | Endowment plans also have similar tax benefits. The returns/ maturity pay-out received at the expiry of the endowment plan is exempt from tax deduction u/s 10(10D) of the Act. U/s 80C, you can claim tax refunds from the premiums paid towards the plan up to ₹1,50,000 in a year. |
Both term insurance and endowment plans serve different goals. Once you break down the endowment plan vs term plan approach and see the differences, you will recognize if they align with your goals. Based on your needs and budget, you can pick an investment tool. To know more about term plan, ulip plan, retirement plan, long term savings and more visit PNB MetLife website.
Disclaimer:
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.
PNB MetLife India Insurance Company Limited
Registered office address: Unit No. 701, 702 & 703, 7th Floor, West Wing, Raheja Towers, 26/27 M G Road, Bangalore -560001, Karnataka
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Call us Toll-free at 1-800-425-6969, Phone: 080-66006969, Website: www.pnbmetlife.com, Email: indiaservice@pnbmetlife.co.in or Write to us: 1st Floor, Techniplex -1, Techniplex Complex, Off Veer Savarkar Flyover, Goregaon (West), Mumbai – 400062, Maharashtra. Phone: +91-22-41790000, Fax: +91-22-41790203.
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