Term Insurance or Endowment Plan: Which is Better?


Given the increasing number of investment options, there is always a question on whether you should buy a term plan or an investment plan. Only when you understand the purpose of both the plans, you will be able to make a decision. You need to understand the importance and benefits of insurance, as well as, investment separately. Insurance protects you from unforeseen events and investments help you grow your wealth. Here, the question is that what is more suitable for you–term insurance or an endowment plan? 

What is a term insurance plan? 

A term insurance plan is a life cover, which provides for the financial security of your loved ones in case of an untoward event. The insurance is for a specific term and is available at an affordable rate. The premium amount remains fixed during the term period and you can customize it with an addition of riders like accidental death or waiver of premium. 

What is an endowment plan?

An endowment policy is a mix of investment and insurance. The policy provides a cover for the life of the insured, and this cover is known as the sum assured. A part of the premium will be allocated to the sum assured and the balance will be invested. An endowment plan is an opportunity for you to grow your funds while enjoying a life cover.

What should you choose?

If you are confused between term insurance or endowment plan, you need to make a decision keeping your long-term financial goals in mind. If you are looking to invest solely to grow your funds, you can opt for endowment insurance. However, if you have no insurance policy, it is advisable to select term insurance for the purpose of protection. Term insurance benefits include financial security of your loved ones at a low premium amount. However, in the case of survival during the policy term, you will not be provided with any maturity benefits. On the other hand, this is not the same with endowment plans. In an endowment plan, the sum assured will be returned back.

Once you have understood what an endowment insurance plan is, you will be in a better position to make a decision. An endowment plan should ideally be opted as an addition to a pure term plan. The coverage provided by an endowment insurance plan is less as compared to a term plan. Hence, you can buy it for the purpose of investment but remain invested in a term plan for the financial security of your dear ones. There are many companies where you will not have to decide on endowment Vs term plan because they offer both the plans and the sum assured is different. The tax benefit will be available in both the options.

Term plans have always been considered as the most traditional form of life insurance. Since it provides you a life cover, you must buy a term plan before making any other investment decision. You cannot choose between the two because both serve different purposes and there is no denying the fact that a term plan is very crucial for individuals of all ages. With a term plan, you can provide for your family when you are not around.