Term plan or an endowment plan; which is better?

Insurance

oi-Sunil

By Sunil Fernandes

Published: Saturday, February 16, 2013, 9:10 [IST]

A term plan provides pure risk cover and does not return the amount of premium paid, if the policy term expires and the policy holder is still alive. On the other hand in an endowment policy the sum assured is got back if the individual still survives during the end of the policy.

Most individuals go in for an endowment policy, which might not be the right approach, since the cover in an endowment policy is far less then a term cover.

Example

If you take an endowment policy and pay a premium of Rs 10,000 annually for 15 years, you are likely to get a cover of perhaps Rs 3 lakhs or so, with the amount returned after 15 years with accumulated bonus etc.

In a term insurance for the same period and same amount you are likely to get a cover of at least 15-Rs 35 lakhs. This means that in case the policy holder dies during the cover period he is likely to get a huge amount as sum insured as compared to an endowment policy, which would provide very less coverage.

It's always more prudent to go in for a term insurance policy since it covers the death risk several times, as compared to an endowment policy. No doubt, the sum assured would be returned back in the case of an endowment policy, but the purpose of insurance is defeated as the risk coverage is too low.

Most of the insurance companies provide both a term and endowment plans. The premium for sum assured differs from the various insurance companies. Tax benefits under Section 80C of the Income Tax Act are available under both the cases.

If you are the sole earning member with too many obligations like a home loan or other loans, it would be prudent to go in for a term plan.

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