Term Insurance Or Endowment Plans: What Should You Consider?
Term life insurance plan covers you for a fixed term/period. If the policyholder dies within the term, the beneficiary will receive a lump-sum tax-free amount as the death benefit.
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Life insurance rarely makes it to the top ten list of buying. It is not pleasant to talk about our own demises. However, understanding the pros and cons of life insurance coverage is critical if you want to ensure that your loved ones are financially secure in the event of your untimely death.
But do you know about different insurance plans available these days?
What is term plan and how is it different from an endowment plan?
In this article, you will find everything you need to know about Term Insurance Policies and Endowment Plans in Canada and comparison between the two to help you make informed decision.
Term Insurance
What is Term Insurance?
A term life insurance policy protects you for a fixed period, called Term. If the policyholder dies during the term, his or her beneficiaries will receive a tax-free death benefit.
Features
1. The amount of coverage purchased determines the extent of the death benefit. The higher the amount of coverage, the higher the insurance fees, called premiums.
2. As a purchaser, you need to choose a coverage category. By coverage category we mean the specific term (e.g., 10, 15, 20, 25 or 30 years) or a specific age (e.g., 65).
Pros
1. The monthly premiums will not increase for the duration of the term.
2. Term life insurance has relatively smaller premiums than other forms of life insurance, making it an excellent choice if you have a growing family.
3. If the insured is in good health and can readily qualify for benefits, it could be more cost-effective to shop for a new policy at lower premiums at the end of the term than to extend the old one.
4. Women’s premiums are marginally lower than men’s premiums.
Cons
1. If the policy is non-renewable, coverage ends at the end of the term and no death benefit is paid if the insured survives the end of the term.
2. Premiums rise as you get older because you are at the risk of dying because of age.
Endowment Plans
What is an Endowment Plan?
An endowment policy, also known as a life insurance endowment, is a type of life insurance in which the insured person will redeem their policy for its face value if they survive the end of their term.
Features
1. It will pay your beneficiary the face value of the policy if you die and it will also pay the face value of the policy if you outlive the specified contract duration.
2. You can pick how much money you want in 10, 20 or 30 years and if you pay the fixed premium, you can receive the face value of the life insurance policy at the end of the contract.
Pros
1. It is life insurance that pays out regardless of whether the insured survives when the policy matures.
2. We can also think it of as a retirement fund because you can use the money even if you live past the maturity date.
Cons
1. Endowment plans have higher premiums than traditional whole life and term insurance policies.
2. This is one of the most expensive types of life insurance available.
3. It is very rigid, which makes it a poor option for people who expect income irregularities or financial crisis.
No matter which policy you consider, getting life insurance is a necessity when you have a family that depends upon you. Your unfortunate demise would leave them financially vulnerable. Life insurance becomes extremely useful to support your family in your absence.
Difference Between Term Insurance and Endowment Plans
| Serial. no. | Points | Term Life Insurance | Endowment Plans |
| 1. | Coverage | Only pays if the policy holder passes away within the policy period. | Pays nominee in case of death of the policy holder. In case the policy holder is alive, they receive the policy maturity amount. |
| 2. | Price | It is less expensive. | It is more expensive. |
| 3. | Sum Assured | Gives the highest sum assured. | Sum assured is not as high, but you get maturity benefits. |
| 4. | Payout Option | The Nominee gets the amount in Lump sum or Equal installments or both. | The payout is always lump sum. |
Were you able to figure out if you need term plan or endowment policy? Your next step should be to prepare a list of questions to ask your insurance agent. Read our blog on the questions you should ask your insurance agent.
