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Endowment Insurance Vs Term Insurance - A Comparison

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The first step in securing the future of your family members is to comprehend their financial demands, with this exercise giving you the ability to assess what investment or insurance plan will produce the best benefits for a specific circumstance. The decision of whether to get term insurance vs endowment insurance is a common one for policyholders. Consequently, a thorough comparison of term insurance and endowment plans can be useful.

The following sections will offer a comparative overview of term insurance vs endowment insurance.

What is Term Insurance?

Before diving into endowment insurance vs term insurance, we will discuss what the two insurance types mean. Term insurance, one of the most well-known types of life insurance coverage, is a conventional insurance product that offers the insured person long-term life coverage. The insured parties determine the “period” for which they need life insurance.

A death benefit may be paid to the nominee in case the insured individual dies within the policy's term. When term insurance is purchased, the sum assured payable is predetermined. Term life insurance is typically seen as one of the more economical options for life insurance.

Similar to most insurance policies, a term insurance plan requires regular premium payments to remain in effect. It is important to remember that a fundamental term insurance plan only provides a death payout. So if the policyholder survives the policy period, no survival benefit will be paid to them.

What is Endowment Insurance?

Another well-liked life insurance option offered in the UAE is the endowment plan. Similar to a unit-linked insurance plan, it provides the dual benefits of investing and insurance. However, some characteristics of endowment insurance  set it apart from term insurance.

With an endowment insurance plan, you can set aside money on a regular basis for a set period. When the policy expires at the conclusion of the time frame, you can get a lump sum payment. Only if the insured lives through the policy's term is it payable.

The insurance coverage comes into action in case the insured person passes away during the policy's term. The death payout in this case shall be the sum guaranteed and any relevant bonus to the nominee.

Endowment plans come in a variety of forms to meet different financial requirements. You can determine your family's needs for suitable life insurance or investments and make the necessary calculations. This can help you fulfil both long-term and short-term goals in life and build financial coverage for the future.

Endowment Insurance Vs Term Insurance

The following table offers a comparative overview of endowment insurance vs term insurance –

Factors Term Insurance Endowment Insurance
Plan Type This is a risk coverage plan that financially secures the future of the family in case the insured passes away Endowment insurance is a combination of a life insurance policy and an investment plan 
Coverage Type  Financially covers the insured’s family in case of their demise during the policy tenure Covers the life of the insured and offers return on investment
Suitable For Essential a life security tool People wanting to increase their funds while getting financial security of a life insurance plan
Premium Charges It is one of the most reasonable life insurance tools in the market – you can get financial security with a higher sum assured at a considerable premium Higher premium rates compared to term insurance plans 
Maturity Benefit No maturity benefits   Maturity benefits paid towards the end of the policy tenure 
Rider Covers Option to improve the coverage by including add-ons like critical illness cover, return of premium benefit, accidental death benefit, and more Same as term insurance plan, you can improve the plan coverage with add-on covers like critical illness cover, return of premium benefit, accidental death benefit, and more
Death Benefit Policyholder is only covered for the death benefit Both death and plan maturity benefits provided
Assured Sum  The sum assured as death benefit is almost 15 to 20 times the yearly income of the policyholder The sum assured as maturity benefit is sufficient to be used as a return on investment
Liquidity No liquidity provided as such Offers partial withdrawal of the assured sum for financial emergencies

Endowment Insurance Vs Term Insurance – Which to Choose?

The desire to invest and increase your money should not necessarily be combined with your insurance requirements. Consequently, a person should make a selection between term insurance vs endowment insurance only after considering their financial objectives. Insurance should not be combined with any other financial purpose as per various financial experts. Thus, term insurance and other pure insurance products generally have an advantage over endowment programmes.

As your money will be invested in the stock exchange and a variety of other instruments, the returns from endowment programmes are correlated with market activity. This means that the possibility of fluctuations is always present with endowment plans, which can often lead to instances in which their delivered returns are far below expectations. Additionally, endowment plan costs are typically greater than term insurance premiums.

Endowment plans demand a larger premium that goes toward insurance and investment and invest your money in various securities. Additionally, mortality and other fees are subtracted from these plans' payouts, and only the balance is given back to the policyholder at maturity. Endowment plans frequently yield meagre returns when compared to the insurance premiums for them.

If obtaining financial protection is your main concern, it is best to choose a pure insurance plan. Endowment plans, on the other hand, might be a smart choice for people who currently have a term insurance strategy in place and are seeking investment opportunities. The best course of action is to get pure term insurance for protection as they have considerably low premiums.

Key Takeaways

  • Understanding your family’s financial needs is necessary before getting a plan to protect their future. You can determine which investment or insurance policy will result in the greatest benefits in a given situation only after considering the requirements of all the individuals involved.
  • Policyholders mostly choose between term insurance and endowment insurance with respect to life insurance and associated types.
  • One of the most common types of life insurance is term insurance, which is a typical insurance plan that provides the insured with lifetime life insurance. If the policyholder passes away within the policy's term, a death benefit may be given to the nominee. The sum assured payable is established when term insurance is acquired.
  • Endowment insurance offers the same advantages of investment and insurance just like a unit-linked insurance policy. Endowment insurance differs from other types of insurance in a few ways, though.
  • While endowment insurance provides both mortality and maturity benefits, term insurance solely provides death benefits.
  • The need for insurance should not always be paired with the need to invest and grow your money. A person should decide between term and endowment insurance only by examining their financial goals. Financial experts generally advise against combining insurance with any other financial goal.
  • The profits from endowment programmes are associated with market activity as your funds will be utilised in the stock exchange and many other instruments. This means that whereas endowment programmes are guaranteed to produce returns, there may be times when they fall significantly short of expectations.
  • A term insurance plan is the greatest option if having financial security for your family is your top priority. Similarly, individuals who already have a term insurance policy in place and are looking for investing options may find that endowment plans are a wise decision.

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