Financial planning is very important in our life. It helps us at various stages of life. It increases our confidence which impact our decision making skills. the saddest thing is that Financial planning is missing from our education system. We are taught Pythagoras, trigonometry and many more things which are nowhere related in big deals of our life. we are always taught one things i.e SAVE,SAVE,SAVE..but nowhere it is taught where to utilize that saved money. Here, Financial planning comes in picture. Life Insurance is one of the major aspect of financial planning.Now, the question arises that which life insurance(term or endowment) provide better outcome. Let us understand about term and endowment plan in a easy way.
Term insurance : Term plans are basic and simple. This plans are applicable for specific term i.e 20, 30,50 years. It provide benefit only on person’s death. Due to this feature,this are also known as pure protection plan. A person does not receive any benefit if he is alive till maturity. Premiums are comparatively cheaper with higher Sum assured. To add further benefit, a person can also opt for rider.
Endowment plan : Endowment plans are termed as saving and protection plan. It means that a person receives benefit in case of death as well as maturity. Surrender is also applicable in endowment plans provided that minimum three years premium has to be paid. To add further benefit, a person can also opt for rider.
Difference between Term and Endowment :
|1. Pure Protection plan||1. Saving and Protection plan.|
|2. Less premium||2. More premium.|
|3. must for those who have financial dependency on family||3.It is for those who want protection as well as wealth creation.|
|4. Provide only Death Benefit||4. Provide Death as well as maturity benefit.|
|5.Sum assured selected by life assured should be around 15 to 20 times of annual premium||5. With increase in Sum assured for endowment Plan, premium too gets heavily increase.|
|6. Term plans does not provide any maturity benefit.||6. Endowment plans Provides maturity benefit.|
|7. No liquidity||7. A person can surrender his policy and get Surrender value during financial Crisis.|
|8.Cannot take loan on term plan||8. Loan facility is available In endowment plan provided Policy should have acquire Surrender value. Minimum 3 years premium should be paid for acquiring surrender value.|
|9. No flexibility||9. No flexibility.|
|10. Person Receives Tax benefit on premium under section 80 C Death Benefit too are tax free under section 10(10D) of the income tax act, 1961.||10. Person Receives Tax benefit on premium under section 80 C Death or maturity Benefit too are tax free under section 10(10D) of the income tax act, 1961.|
Which plan to buy between Term and Endowment?
If your Family is dependent on you financially, buying term insurance should be your topmost priority. During this uncertain time,avoiding term insurance would be your biggest mistake, due to which your family will suffer in case of your absence. Maintaining standard of living would be quite difficult.
If your objective is saving as well as protection then you should go for Endowment. please note that for protection in endowment plan, premium rates are much higher compared to term plan. If planned well, it will be helpful in creating wealth. For this, you should have clear picture of your financial objectives in future. For ex, You should know about amount required for your child education or marriage after certain years, keeping that amount in mind, you should take sum assured, based on Sum assured amount, premium will be calculated.
Overall, based on your requirement, you should take Term or Endowment. Taking both plans is also a good option which will keep your portfolio balance.
This article is not sponsored and not meant for endorsing any particular insurance company. Please Check Terms and Condition of respective organization along with inclusion and exclusion before buying insurance policy.