Choosing between a term plan and an endowment plan in the UAE can significantly impact your financial future. While both offer life coverage, they serve different purposes.
A term plan focuses on providing pure protection, offering a high sum assured for low premiums. It ensures your loved ones remain financially secure if something happens to you. In contrast, an endowment plan combines life insurance with a savings component, giving you a payout at maturity or to your beneficiaries upon your death.
Understanding the differences between these plans, including their benefits, costs, and suitability, is crucial for making an informed decision. This guide will explore the key factors to help you choose the right option based on your goals and financial needs.
What is a Term Insurance Plan?
Before diving into the difference between endowment plans and term insurance plans, we will take a closer look at each category for a better understanding.
A term life insurance plan is an agreement between the life assured and the insurance company. Under this agreement, the insurer financially secures the life assured’s family in case they pass away during the policy tenure. The beneficiary receives the sum assured in the form of a death benefit, which can be used to meet daily needs, continue a similar lifestyle as before, pay off financial obligations, and so on.
What is an Endowment Plan?
Endowment plans fall under the category of life insurance. They combine the benefits of insurance and an investment tool.
In case of the life assured’s death during the policy period, the beneficiary receives a death benefit. However, if the life assured survives the policy tenure, the premium accumulates at a pre-decided rate and is paid out as a lump sum at the time of policy maturity.
Understanding the Difference Between Term Plan and Endowment Plan
Let’s find out the key differences between an endowment plan and a term plan.
Basis
Term Insurance
Endowment Plan
Objective
To provide financial cover in case of the policyholder’s death
To help the policyholder save and get financial life cover
Maturity Benefit
None — the plan provides a simple life cover
Maturity benefits provided without requiring any additional cover
Withdrawal
You cannot withdraw the money from term life insurance
You can withdraw the savings in case of an emergency (after paying the surrender charges)
Payout Options
Available as a monthly payment, a lump sum payment, or a blend of both
Usually done in lump sum only
Suitable For
Individuals who are usually the sole bread earner of the family — to cover them in case of any unforeseen scenario
Individuals seeking insurance cover with wealth creation or creating long-term savings
Premium Amount
More affordable than most life insurance plans
Higher premiums as the plan serves dual benefits
Term Life Insurance Calculator
Term Plan Vs Endowment Plan — What to Choose?
Understanding the difference between term insurance and an endowment plan makes it easier to choose the right option. Here are key factors to consider when deciding which suits your financial needs -
Financial Objective - Your lifestyle, number of dependents, and personal needs shape your financial goals. Decide if you want pure insurance, an investment, or a mix of both.
Current and Future Expenses - Daily expenses and the rising cost of living make saving for the future important. Based on your income and expenses, determine which plan better supports your needs.
Affordability - Term insurance is typically cheaper than an endowment plan. Consider your budget and choose a plan with a sum assured that you can afford to maintain long-term.
Life Goals - Your long-term goals help guide your decision. Knowing where you want to be financially in 20 or 30 years can clarify whether term life insurance or an endowment plan fits best.
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