Term Insurance Vs Investment Plan - Which Is Better?
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In terms of life insurance, most people are aware that both term insurance, as well as investment plans, offer a life cover. However, they both cater to different needs. While term plans fulfill the need for protection, investment plans fulfill the need for savings. You will be able to choose the right plan for yourself once you identify the differences, the features, and your needs pertaining to each category of life insurance. These factors can help you arrive at the best term insurance policy or make a comparative analysis of term insurance vs an investment plan.
The Difference Between Term Insurance and Investment Plan
Here are the main points of difference between the two:
1. Cover
A term life insurance plan offers a pure life cover. It is a simple life insurance plan that promises to pay a sum assured if the policyholder dies within the policy period. If he outlives the term, there is no maturity benefit.
An investment plan offers a life cover as well as a savings option. Your nominee gets the death benefit in case of your unfortunate demise. If you outlive the policy period, you get a maturity benefit.
2. Price
Since a term plan doesn’t offer any return and only provides risk cover, it is less expensive.
On the other hand, an investment plan provides a maturity benefit, along with loyalty additions. These additional features make an endowment policy more expensive.
3. Sum Assured
The sum assured in a term insurance plan is the highest. This is because it provides only risk cover, fulfilling your need for protection.
The sum assured is not as high in an investment plan as compared to a term insurance plan. This is because an endowment plan fulfills the need for saving. You get a lower sum assured, but you are also offered a maturity benefit.
4. Aim Of Cover
Term life insurance aims at only providing financial help to your nominees in case of your demise. The amount can work as an income replacement to manage your household expenses and outstanding EMIs. It is essential to buy a term insurance plan if you have dependent family members.
The Investment plan aims to help you save for your future goals. It provides guaranteed returns and caters to the need of future savings. Learn more about investment plans here.
5. Payout Options
In a term insurance, the nominee receives the sum assured in lump sum or equal installments or a combination of both on the death of the insured during the policy period The policyholder has the option to customize the payout option based on his/her family needs it can be lump sum, monthly or a combination of both.
In an investment plan, the payout is a lump sum either on the death of the policyholder during the policy term or as a maturity benefit on completion of the policy term.
Conclusion
So as you can see from the points mentioned above, there are some core differences between term insurance and endowment insurance. Both have some very good benefits, but the needs they fulfill are different. So you need to assess your insurance requirements and see which kind of life insurance is best suitable for you.
Do read - Long-Term Investment Plans in India
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.
