Endowment plans vs. term plans: crafting a hybrid strategy for wealth and security

To enjoy a secure financial future, you must maintain concrete and expert planning from an early stage. The earlier you plan and implement your planning, the more time you’ll gain for wealth building.

However, this planning is crucial as the entire future of your finances will depend on it in the long run. Critical evaluation of your needs and the market situation, including the inflation factor, are essential steps in this planning process.

This article will shed light on resolving the confusion between investing in endowment plans and term plans.

What is term insurance?

Term life insurance is one of the most widely purchased insurance products. This simple product allows life coverage of the concerned individual for an extended time frame as per the chosen policy terms. The policyholder decides the time according to his/her convenience.

If the concerned policyholder passes away during that period, then the designated nominee supposedly is entitled to receive the death benefit. The payable sum assured is decided and fixed during policy issuance. To maintain the plan, you need to pay a certain premium at regular intervals.

You must note in this context that term plans do not offer any survival benefit. You will only gain something from a term plan if you survive the decided policy term. It has been designed to help your family members in your absence.

What is an endowment plan?

This is yet another very popular insurance product in the country. The principal reason behind its popularity is that it offers dual benefits of both investment and insurance protection, much like a ULIP.  However, there are certain basic differences between this and a term plan.

Purchasing an endowment plan allows you regular savings over a stipulated period. As the plan matures, you will receive a lump sum benefit. However, unlike term plans, this amount is only receivable if the concerned policyholder survives the stipulated policy term.

However, in the case of any unfortunate event, the insurance feature of the plan allows the designated nominee to receive the sum assured along with any other applicable bonuses. While purchasing the plan, you have to clarify what endowment plan premiums are and how long you have to pay them.

The market is loaded with a variety of endowment products based on varied financial requirements. You have to assess your goals and requirements well to choose the right product.

Differences between endowment plans and term plans

Before you invest in any such investment tool, be it an endowment plan or term plan, you need to understand the basic differences to make an informed decision. Some of the most highlighting differences include the following:

POINTS OF DIFFERENCE	TERM PLAN	ENDOWMENT PLAN
PRODUCT TYPE	This type of life insurance product allows policyholders to have life coverage.	This type of product includes both insurance and investment coverage.
MOST SUITABLE FOR	Term plans are ideally most suitable for individuals seeking family financial security despite their absence.	This is best suited for those who are seeking wealth-creation opportunities with insurance benefits.
AFFORDABILITY	Term plans are best known for their affordability. You do not need to pay any excess charges for extended coverage.	These plans are known to be comparatively slightly pricier than term plans as they allow both investment and insurance opportunities.
SAVINGS	Terms plans are no savings instrument.	These plans are used both for insurance and investment opportunities.
SUM ASSURED	Based on your income status, you have to select the right sum assured amount to ensure enough coverage in the long run.	In this case, the higher the sum assured, the premium payable amount also rises.
MATURITY BENEFITS	Pure-term plans do not offer any maturity benefit. However, if you opt for the premium return rider, you will receive the entire premium amount paid after the policy term during your survival.	Endowment plans allow maturity benefits at the end of the plan tenure.
LIQUIDATION	You cannot liquidate an active term plan under any circumstance.	A partial withdrawal facility is available from the sum assured amount to handle any financial contingency as per the plan terms.

Term plan or endowment: Conclusion

While selecting the right financial instrument, you need to assess certain crucial factors like your financial objectives, current and future expenditure, affordability, and financial targets. All these factors vary from one individual to another. You have to assess from your perspective, considering your circumstances.

There is no single formula that suits all equally well here. What might prove to be suitable for your friend, might not prove to be as beneficial for you. You may consider taking professional aid to ensure concrete planning and enjoy a secure financial future for yourself and your family.