What Is a Term Plan?
A term plan is commonly known as a pure lie insurance plan, which means it provides financial protection to your family in case of your unforeseen demise. Here the money does not grow in any way possible. What you are paying in terms of premium your family and the nominee o the policy will get once they die or the term has been completed.
Benefits Of Term Insurance
A term plan comes with several benefits that a customer can easily avail, given. Below are some of them that a person needs to know before avail of a term insurance plan.
The term plan comes with affordable premiums and a high-value life cover. For your term plan, you can start with Rs 540 a month as a premium payment. The earlier you purchase the term plan, the lower you will be paying the premium amount for your term plan.
In addition to this, term plans are designed in a way that they provide substantially longer coverage. Most of the term plans come with coverage until the age of 99.
On the other hand, if you have added any optional rider to your term plan, you will be getting a lump sum payout from it if you are diagnosed with any form of critical illness covered by the optional rider in the plan.
Term Plan Vs Endowment Plan: Things to Know About Term Plans
Below is the list of essentials one needs to know before availing of a term plan.
First, the policyholder should be an Indian citizen; PIOs and NRIs can also avail benefits of term insurance but only in India.
The insurer needs to undergo a health test before they avail term insurance plan. This way insurance company will know everything about the policyholder in terms of health. After this, an amount for the premium will be assured, which the policyholder needs to pay at regular intervals.
Moreover, the term insurance premium is higher for smokers than the ones who don’t smoke. This is because smoking leads to several medical conditions, and it is a high risk to one’s health.
The person availing of the term insurance needs to provide every required document during the application filing.
Eligibility for Term Insurance
- Age:- 18 years to 60 years
- The maximum cover for term insurance:- 75 years.
- Who are eligible to buy term insurance:- young individuals, newly married, senior citizens, parents for their children, and couples for their spouses.
What Is an Endowment Plan?
An endowment plan works like a life insurance policy, but instead of covering the life of the insured person, it helps the policyholder to save money for a specified period of time. So they can have a lump sum amount when the policy matures. In addition to this, if the insured person survives till the end of the policy term, they will get added benefits on top of the assured sum.
This maturity amount can be used for a number of financial needs which might come to you in your old age. One could fund their children’s education from it while others fund their children’s marriage. The insured person can do anything with the money which he gets at the end of the policy.
Apart from this, if the person dies before the policy matures, that case insurance company will provide the full sum assured to the nominees of the policyholder. As a result, if we look at any life insurance policy which serves as a saving component and provides lump sum maturity benefits can be coined as an endowment plan.
With an endowment plan, a person can quickly fulfill their needs of life cover as well as save money same plan. An endowment plan is considered to be one of the traditional forms of life insurance which is available for Indian citizens for a very long time.
Benefits Of Endowment Policy
Well, according to financial experts, people who have a regular source of income and they are looking for a way to add a lump sum amount for a specific period of time may go for the endowment plans. Apart from this, given below, we have mentioned some of the best advantages you can get when availing endowment plans for yourself.
The return on endowment plans may seem lower than other investment policies. But the truth is it is a risk-free plan where you will be getting the assured sum no matter if you survive the maturity of the policy or die before it.
The policyholder needs to set a certain amount of money aside from their income for the payment of the premium. This leads to a disciplined approach to making savings work.
In addition to this, with endowment plans, you are surely getting an annual bonus, which is typically paid to the policyholder as a specific percentage of the sum assured. Besides this, if the policyholder survives the maturity date of the endowment policy, they will get additional bonuses accrued during the tenure of the policy. In case of an early demise, the nominee will be getting the death benefit which also includes an entire sum assured along with accumulated bonuses.
One of the main advantages of having an endowment plan is that it comes with compounding returns based on the term of the policy. It won’t increase your sum assured into a massive number, but still, it will be more than you have invested in the endowment plan.
A policyholder can avail loan against the endowment policy wherever they need it. For availing of a loan, they need to at least pay the premium for the first three years without any discrepancies. Another point to note here is that when you are availing loan over the endowment plan, there will be no additional collateral asked to put against the loan amount.
You will be getting double tax benefits. The first one is the tax benefit under Section 80C on the annual premium under the Income Tax Act of India. The second will be under Section 10D on the death benefit and sum assured at the maturity of the policyholder. Meaning you don’t need to pay taxes on the amount you will receive at the end of the endowment plan’s tenure.
Moreover, Endowment plans are highly liquid in nature, and one can make the payments of their premium in a short time and get the benefits of it over the long term. On the other hand, if you stop paying the premiums after a certain minimum year limit. You will get a free paid-up policy for a low sum assured to the policyholder.
Lastly, the insured person can take additional riders on their endowment plans to get major surgical assistance and for critical illness as well. For all the additional benefits, one has to pay only a marginal change in their premium amount.
Term Plan Vs Endowment Plan: Things to Know About Endowment Plans
For endowment plans, you need to invest early. When it comes to investing money in this type of insurance plan, you need to follow the mantra of “the earlier, the better,” as it gives you the flexibility to invest your money for a much longer time and grow.
A person with a regular income salary can go with a regular endowment plan. At the same time, the others who are running a business or a startup, causing them to have irregular income, can opt for a single payment option or limited payment option for their premiums.
There are mainly five different types of endowment plans, and those are participating, non-participating, Unit linked endowment policy (ULIP), full endowment, and low-cost endowment policy.
Eligibility Criteria For Endowment Plan
- Age:- 90 days to 60 years, meaning one can buy an endowment policy for their children and parents as well.
- Endowment plan term:- 18 years is the minimum age of maturity for most of the endowment plans.
- Who are eligible to buy endowment plans:- young individuals, newly married, senior citizens, parents for their children, and couples for their spouses.
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Wrapping Up
So these were the main difference between a term plan and an endowment plan; a term plan will not allow you to save money for your future. In contrast, the endowment plans will give you a better option for saving money and also provide an added bonus on it which you can avail yourself of at the end of the tenure. As a result, in a lot of cases, endowment plans are much better than term plans. But if you are not able to afford the regular premium amount which you need to pay for the endowment plan, then a term plan is an excellent option for you.
Which is a better term or endowment plan?
Term insurance doesn’t work like a saving policy; at the same time, the premium you will be paying in the endowment is slightly higher than the term plan. Endowment plans can be used to save your earnings for the future.
What are the things which are not covered in the term plan?
Term insurance does not cover death due to natural calamities, terrorist attacks, accidental damage until it is covered by a rider, undisclosed habit or disease not mentioned earlier, death outside the country, critical illness without a rider, and death because of a terminal disease.
Is it good to buy an endowment plan?
Yes, they are good investment tools as they are long-term plans, and then it provides over a longer period of time. The main advantage of investing money in an endowment plan is that it is a disciplined and well-organized way to full all your future financial requirements.
Does the endowment plan comes to cover the death of the owner?
This endowment plan will give you the assured sum as the beneficiaries if the person dies during the policy tenure and even the case the policy matures, and the person survives.
What will happen when your endowment policy matures?
If the policyholder survives the maturity of the endowment policy, they will be paid the full benefit of it. Apart from this, if the person dies before the maturity of the policy, a death benefit according to the plan will be paid to their family and nominee at the time of their death.