Living life worrying constantly about all the things that could go wrong is neither pleasant nor prudent. However, it is essential to take strategic steps to ensure that if and when the worst occurs, you are prepared. A life insurance policy is an integral part of such strategic planning. When selecting a life insurance policy, you may see different options such as endowment life insurance and whole life insurance. Not all life insurance policies offer the same benefits and cover, and hence, you should understand the differences before you make your decision. Here are some of the key differences between endowment insurance and whole life insurance.
Death and maturity benefits
In insurance, death benefit means that in case of the demise of the policyholder during the policy term, the insurer will pay the sum assured to the nominees. A whole life insurance policy is a traditional life insurance policy that only offers a death benefit. Since it only has a death benefit, in case the policyholder survives, there is no payout.
Conversely, in case of endowment life insurance, in addition to the death benefit there is also a survival or maturity benefit. This means that in case the policyholder survives the policy term, they receive a lumpsum amount as sum assured. Hence, with endowment life insurance, you receive both the death as well as the maturity benefit.
Long-term savings
Since endowment life insurance offers maturity benefits, it helps you save for your future financial goals. For instance, if you get an endowment life insurance policy with a sum assured of Rs 50 lakh for 30 years at the age of 35, you will receive that amount at the age of 65 at the end of the policy term. You can use this money towards your retirement corpus or to meet other goals such as setting up your own business or funding your children’s higher education.
Meeting such goals that require a large amount of money becomes easier with an endowment life insurance policy as it helps you save diligently over a long period of time. With a whole life insurance policy this is not possible since it is a pure protection policy i.e., only offers a death benefit.
Policy term
One of the unique benefits of a whole life insurance policy is that the coverage continues in perpetuity as long as you keep paying the premiums. So, this kind of life insurance policy continues throughout your entire life, hence the name whole life insurance.
However, with endowment life insurance policy, you have the flexibility to choose the policy term according to your financial and retirement planning needs. Generally, many people don’t feel the need to have a life insurance policy in place in their golden years because by then they don’t have any dependents and their financial priorities are different.
Returns and riders
When opting for endowment life insurance, you have the option to select a unit-linked endowment plan which doubles up as an investment. It invests a part of your premium in a fund of your choice and allows you to earn market-linked returns. Whole life insurance doesn’t have such an option. But it does offer the option of availing a loan based on the cash value of your whole life insurance policy.
With an endowment life insurance policy, you can also opt for a range of riders such as critical illness and accidental death rider to make your policy more comprehensive. You can use an online life insurance premium calculator to know the premium for these riders as well as the base insurance policy.
An endowment life insurance policy can help you with multiple financial goals such as savings, high returns, and providing a life cover. It also offers tax benefits for the premium paid under section 80C of the Income Tax Act, 1961. The payout of the endowment life insurance policy is also exempt from tax under section 10(10D). Depending on what type of policies you already have in your investment portfolio and what your financial goals are, you can opt for an endowment life insurance or a whole life insurance policy.
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