Among the different things to consider in one’s financial plan, life insurance is an investment that must not be overlooked. Having a life insurance cover by your side ensures that your dependents have a financial safety net to fall back on even in your absence. Considering there are various types of life insurance plans that are available in the market, it can be confusing to select a policy that works for you.
This article explains two popular types of life insurance plans — an endowment policy and a whole life policy — and the differences between the two.
What is an endowment policy?
An endowment policy is a type of life insurance plan that offers dual benefits of protection and investment in one. In this policy, the focus is not just on insuring the life of the policyholder, but also on providing them returns on their investment. This is possible by way of savings that are a component of the endowment plan. This plan helps achieve not just financial coverage for your dependents, but also your financial goals. Hence, when life throws a curveball at you, the death benefit of the endowment plan can come in handy for your dependents. On the other hand, if you outlive the tenure of the insurance plan, you can receive maturity benefits that can be used to fulfil your life goals like buying a house, paying for children’s education, or even serving as a retirement corpus.
What is a whole life insurance plan?
As the name suggests, a whole life policy offers coverage for the life of the policyholder for the entire life, generally assumed to be till 100 years. For that, the policyholder must pay a premium for a limited period. Most whole life plans offer a survival benefit at the end of the premium payment period either as a lumpsum or in instalments till the policyholder is alive. Hence, whole life policies that provide a survival benefit in instalments can be used to support your retirement income.
Differences between whole life plans and endowment plans
| Whole Life Insurance Plans | Endowment Insurance Plans |
| The payout from the policy, its premiums, the cash value of the policy, and whether they have a participatingaspect or not are factors to consider when buying a whole life policy. | The maturity benefit amount, the premium of the plan, the investment rate, and the policy’s coverage are factors to consider when choosing an endowment policy. |
| Under a whole life plan, the death benefits are paid only in the case of an unfortunate demise of the policyholder. This age limit under a whole life policy is generally set at 100 years. | Endowment plans are valid for a specified period and hence, the death benefits in this type of plan are paid only on the demise of the policyholder. |
| Whole life plans provide a guaranteed payout once the premium payment tenure ends. This amount may either be a lumpsum payment or instalments till the policyholder is alive. | Endowment plans also provide a maturity amount. But this amount is paid at the end of the period after the last instalment. Further, this payment is mostly a lumpsum amount. |
| The premiums paid in a whole life policy are steeper since the policy provides coverage for the entire life of the policyholder along with payouts till the policyholder is alive. | The premiums for endowment plans are comparatively more expensive since it is paid over a shorter duration, say, 10-20 years. |
| Non-participating, participating, limited pay and single premium are the different types of whole life insurance plans. | Endowment plans are of three types — with-profit policies, unit-linked policies, and low-cost endowment plans. |
| The primary advantage of a whole life policy is that the premiums are distributed over a long period and hence, the coverage is available for the entire life along with the policy being affordable. | Since the premiums are required to be paid for a limited period, it builds up the cash value faster. Moreover, the lumpsum payout in an endowment policy can be used to provide in the case of an illness after its maturity. |
These are the different types of insurance plans you can choose from. When selecting a plan, a life insurance calculator can be a nifty tool that comes in handy.
