Endowment Plan vs Term Plan- Know the Difference
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Term plans are pure protection plans which provide life assured and his family with financial coverage in case the life assured meets an unfortunate event. On purchasing a term insurance plan the life assured gets the life coverage or the sum assured in case the life assured dies while the policy is still active.
An endowment policy is essentially a life insurance policy which, apart from covering the life of the insured, helps the policyholder save regularly over a specific period of time so that he/she is able to get a lump sum amount on the policy maturity in case he/she survives the policy term.
The benefits term insurance plans and endowment plans are discussed shortly.
Benefits Of Buying A Term Insurance Plan
The benefits of purchasing a term insurance plan are listed below:
Life Cover
Incase of an unfortunate demise of the life assured, the family gets a lump sum amount as the death benefit to stay financially sound. The family can opt to choose what form they want the payout, either lump sum amount all at once or an income annually or monthly.
Affordable Premiums
One can get a high valued life coverage from term plans by paying a very low premium. Premiums can be paid yearly or mid yearly or monthly, depending on the policyholder. The earlier one buys a term plan the lower he or she has to pay the premium.
Critical Illness Coverage
In case of serious illness coverage included in the buy one buys, he or she is assured to get a lump sum amount during the treatment of a critical illness under most of the term plans either by default or by way of a rider option. This makes it more advantageous for the purchase to purchase it.
Tax Benefits
You can get tax benefits on premiums paid under Section 80C along with premium paid towards critical illness benefit under Section 80D of the IT Act. The lump-sum amount received by nominees as the sum assured/death benefit is also exempted from taxes under Section 10 (10D).
Benefits Of Buying Endowment Plans
There are various benefits of having an endowment plan:
Financial Security
Having life insurance provides the ultimate peace of mind. This is because if someone were to meet with their demise, they know their family and loved ones will have a financial safety net. All of us have some financial liabilities, but adequate life insurance cover ensures that your debts or loved ones will be financially taken care of in the event of your death.
Wealth Creation
Some life insurance plans also offer you the opportunity to create wealth. Apart from life cover, these policies invest your premium in different investment classes to deliver superior risk-adjusted returns that beat inflation and grow your corpus.
Tax Savings
Life insurance plans offer dual tax benefits^. The premiums paid offer tax deduction under Section 80C of the Income Tax Act. Separately, the maturity insurance plans may be entirely tax-free. This tax benefit is available under Section 10(10D) of the Income Tax Act.
Buy Young, Save More
Life insurance plans give you the ability to lock in low premium rates while you’re young. If you buy the same policy when you are older, you will be paying a much higher premium compared to if you bought the same plan when you were younger.
Conclusion
In insurance, the insurance policy is a contract between the insurer and the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for an initial payment, known as the premium, the insurer promises to pay for loss caused by perils covered under the policy language.
Also read: In India, What Are The Best Term Insurance Plans?
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