Term Insurance vs Endowment – Which One to Choose? – Complete Guide – Blog

What is Insurance? Why Do You Need It?

Insurance is a safety net to protect your family from financial emergencies. If something happens to you, insurance ensures your family doesn’t face a financial crisis.

What is Term Insurance?

Term Insurance is pure protection insurance. There’s no investment component. If something happens to you during the policy period, your nominee gets the sum assured amount.

Key Features of Term Insurance:

1. Pure Risk Cover:

No investment, only protection
No maturity amount when policy ends
Only death benefit is paid

2. Low Premium:

Very low premium for same coverage
₹1 crore cover costs only ₹1,000-1,500 monthly

3. High Coverage:

High coverage for low premium
Can easily get ₹50 lakhs to ₹2 crore cover

Term Insurance Example:

Mr. Kumar – Age 30, Non-smoker

Sum Assured: ₹1 crore
Policy Term: 30 years (till age 60)
Annual Premium: ₹12,000 approximately
Total Premium Paid: ₹3.6 lakhs (30 years × ₹12,000)

Scenario 1 – Death during policy term:

Family gets: ₹1 crore (tax-free)

Scenario 2 – Survives policy term:

Maturity benefit: ₹0 (nothing returned)
But Kumar is alive and can continue earning!

What is an Endowment Plan?

Endowment Plan is insurance + investment combination. You get money whether you die during the policy or survive till the end.

Key Features of Endowment Plan:

1. Dual Benefit:

Death benefit + Maturity benefit
Get investment returns if you survive

2. Guaranteed Returns:

Bonus additions (may vary)
Guaranteed maturity amount

3. Forced Savings:

Regular premium payment discipline
Long-term savings habit

Endowment Example:

Mr. Kumar – Age 30, Non-smoker (Same person)

Sum Assured: ₹1 crore
Policy Term: 30 years
Annual Premium: ₹2,80,000 approximately
Total Premium Paid: ₹84 lakhs (30 years × ₹2.8 lakhs)

Scenario 1 – Death during policy term:

Family gets: ₹1 crore + bonuses

Scenario 2 – Survives policy term:

Maturity benefit: ₹1 crore + bonuses (approximately ₹1.2-1.3 crore)

Direct Comparison – Term vs Endowment

Same Person, Same Coverage Comparison:

Feature	Term Insurance	Endowment Plan
Sum Assured	₹1 crore	₹1 crore
Annual Premium	₹12,000	₹2,80,000
30 Years Total	₹3.6 lakhs	₹84 lakhs
Death Benefit	₹1 crore	₹1 crore + bonus
Maturity Benefit	Zero	₹1.2 crore approx
Returns (if survive)	0%	4-5% approx

Cost Analysis – The Shocking Truth:

Premium Difference per year: ₹2,80,000 – ₹12,000 = ₹2,68,000

What if Kumar invests this ₹2,68,000 difference separately?

Option 1: Term + Mutual Fund SIP

Term Insurance:

Premium: ₹12,000/year
Cover: ₹1 crore

Remaining amount in Mutual Fund:

SIP: ₹22,333/month (₹2,68,000/year)
Expected return: 12% annually
Investment period: 30 years

Result after 30 years:

Mutual Fund Corpus: ₹7.5 crores
Insurance Cover: ₹1 crore (if death)
Total: ₹8.5 crores (if death), ₹7.5 crores (if survive)

Option 2: Endowment Plan

Result after 30 years:

Maturity Amount: ₹1.2 crores
Insurance Cover: ₹1 crore (if death)

Difference: ₹7.5 crores – ₹1.2 crores = ₹6.3 crores loss!

Real Returns Analysis – The Truth About Endowment

IRR (Internal Rate of Return) Calculation:

Endowment Example:

Total Premium: ₹84 lakhs
Maturity: ₹1.2 crore (assumption)
Period: 30 years
Actual Return: 4-5% per annum

Real Returns After Inflation:

Current Scenario (2025):

Endowment return: 4-5%
Inflation rate: 6-7%
Real return: -1% to -2% (Negative!)

Meaning: After 30 years of paying premiums, your purchasing power actually decreases!

Tax Benefits Comparison:

Term Insurance:

Premium: 80C deduction (up to ₹1.5 lakh)
Death Benefit: 10(10D) – Completely tax-free
No maturity benefit: No tax issue

Endowment:

Premium: 80C deduction (up to ₹1.5 lakh)
Death Benefit: 10(10D) – Tax-free (conditions apply)
Maturity Benefit: 10(10D) – Tax-free (conditions apply)

Important Condition (10(10D)): Premium should be less than 10% of sum assured (policies after 2012)

Who Should Buy Term Insurance?

Perfect Candidates:

1. Young Professionals (25-35 age)

Why:

Low premium due to young age
High coverage needed for family
Long earning period ahead

Example: Arun, age 28, IT professional

Salary: ₹8 lakhs/year
Dependents: Wife + parents
Needed cover: ₹1.5 crores
Term premium: ₹15,000/year
Affordable & adequate protection

2. Salaried with Dependents

Why:

Family depends on monthly income
Need immediate high coverage
Limited budget for insurance

Example: Vijay, age 35, bank employee

Salary: ₹50,000/month
Dependents: Wife + 2 kids
Home loan: ₹30 lakhs pending
Needed cover: ₹1 crore
Term premium: ₹18,000/year

3. People with Loans

Why:

Home loan, car loan liability
Family shouldn’t struggle with debt
High coverage essential

Example: Ramesh, age 40, businessman

Home loan: ₹50 lakhs
Business loan: ₹20 lakhs
Needed cover: ₹1.5 crores
Term premium: ₹25,000/year

Who Should Consider Endowment?

Limited Scenarios:

1. Zero Financial Discipline

Situation:

Can’t save independently
Need forced savings
Very conservative mindset

Better Alternative:

Term + Recurring Deposit/PPF combination
Term + SIP with auto-debit

2. Extremely Risk-Averse

Situation:

Can’t tolerate any market risk
Want guaranteed returns
Don’t trust equity markets

Better Alternative:

Term + Debt Mutual Funds
Term + Government schemes (PPF, NSC)

3. Tax Planning Need (Old mindset)

Situation:

Need 80C deduction
Want tax-free maturity

Better Alternative:

Term + ELSS mutual funds
Better returns with same tax benefits

Truth: Even in these scenarios, endowment is NOT the best option. Term + separate investment is always better!

Common Sales Tricks – How Agents Convince You

Trick 1: “You Get Your Premium Back”

Reality:

Agent says: “After 30 years you get all your money back. In term insurance, your money is wasted.”

After inflation, money has no value
4-5% return is very low
Same money at 12% return would give 3x-4x corpus

Trick 2: “Guaranteed Returns”

Agent says: “Stock market is risky. This gives guaranteed returns.”

Reality:

Guaranteed low returns
Doesn’t beat inflation
Opportunity cost – massive loss

Trick 3: “Tax Free Maturity”

Agent says: “Maturity amount is fully tax-free. ELSS has tax.”

Reality:

ELSS tax (10% above ₹1 lakh) is minimal
ELSS returns (12-15%) >>> Endowment (4-5%)
Even after tax, corpus is much higher

Trick 4: “Insurance + Investment Combo”

Agent says: “You get both in one product. No need to buy separately.”

Reality:

Jack of all trades, master of none
Inadequate insurance coverage
Poor investment returns
Better to separate both

Trick 5: “You’ll Get Bonus”

Agent says: “With bonus additions, final amount will be much higher.”

Reality:

Bonus is not guaranteed
Depends on company performance
Historical bonus rates show declining trend

Real Life Case Studies

Case Study 1: The Regret Story

Prakash – Bad Decision (2010)

What he did:

Bought endowment plan at age 30
Sum assured: ₹25 lakhs
Annual premium: ₹75,000
Policy term: 25 years

What happened (2025 – After 15 years):

Total premium paid: ₹11.25 lakhs
Policy still running (10 years more)
Surrender value: ₹8 lakhs only
Loss: ₹3.25 lakhs + opportunity cost

What he should have done:

Term insurance: ₹1 crore cover at ₹10,000/year
Remaining ₹65,000/year in mutual fund SIP
After 15 years: ₹25 lakhs corpus (at 12% return)
Cover: ₹1 crore vs ₹25 lakhs

Prakash’s Regret: “If I surrender, I lose money. If I continue, I get low returns. I’m stuck!”

Case Study 2: The Smart Decision

Divya – Smart Choice (2015)

What she did:

Bought term insurance at age 28
Sum assured: ₹1 crore
Annual premium: ₹12,000
Started SIP: ₹20,000/month in equity funds

Result (2025 – After 10 years):

Total term premium: ₹1.2 lakhs
Insurance cover: ₹1 crore
SIP corpus: ₹46 lakhs (at 12% CAGR)
Total protection: ₹1.46 crores

If she had taken Endowment:

Premium: ₹2.4 lakhs/year needed
Cover: ₹1 crore
10-year value: ₹18-20 lakhs only
She saved: ₹26 lakhs extra!

Divya’s Satisfaction: “Best financial decision! High cover + good returns.”

Case Study 3: The Surrender Dilemma

Senthil – Trapped (2008)

Situation:

Bought endowment in 2008 (age 22)
Annual premium: ₹50,000
Sum assured: ₹20 lakhs
Term: 25 years

2025 – Current Status (17 years completed):

Total paid: ₹8.5 lakhs
Surrender value: ₹7 lakhs
Maturity (8 years later): ₹24-25 lakhs expected

His Dilemma: Option 1: Continue

8 more years × ₹50,000 = ₹4 lakhs more
Total: ₹12.5 lakhs investment
Maturity: ₹25 lakhs
Return: 3.8% IRR

Option 2: Surrender & Reinvest

Get ₹7 lakhs now
Invest in mutual fund (12% expected)
After 8 years: ₹17.3 lakhs
New term insurance: ₹50 lakhs cover (₹8,000/year)
Better coverage + better returns

Best Solution: Surrender and switch to term + mutual fund!

How to Choose Best Term Insurance?

Important Factors:

1. Claim Settlement Ratio (CSR)

What is it: Percentage of death claims settled by company

Good CSR:

Above 95%: Excellent
90-95%: Good
Below 90%: Avoid

Top Companies (2024 data):

Max Life: 99.51%
HDFC Life: 99.03%
ICICI Prudential: 98.50%
SBI Life: 97.50%

2. Sum Assured Calculation

Standard Formula: Sum Assured = Annual Income × 15-20

Example: Annual Income: ₹6 lakhs

Minimum cover: ₹90 lakhs (15×)
Recommended: ₹1.2 crores (20×)

Consider These Too:

Outstanding loans (home, car, personal)
Children education costs
Parents medical expenses
Spouse’s earning capacity

Detailed Example: Mr. Karthik, Age 32

Annual Income: ₹8 lakhs
Home loan pending: ₹40 lakhs
2 kids (ages 5, 3)
Education fund needed: ₹50 lakhs
Non-earning spouse

Calculation:

Income replacement: ₹8L × 20 = ₹1.6 crore
Home loan: ₹40 lakhs
Education fund: ₹50 lakhs
Total needed: ₹2.5 crores

3. Policy Term Selection

Standard Rule: Cover till retirement age (60 years)

Example: Current age 30

Policy term: 30 years (till 60)
Premium: Lower due to young age

Long-term Benefits:

Kids will be independent
Loans will be cleared
Spouse can manage financially

4. Riders to Consider

Important Riders:

Critical Illness Rider:

30+ serious illnesses covered
Lump sum on diagnosis
Extra premium: ₹2,000-4,000/year
Worth it: Yes, medical costs are high

Accidental Death Benefit:

Additional sum if death by accident
Extra premium: ₹500-1,000/year
Worth it: Yes, very cheap

Waiver of Premium:

Future premiums waived if critical illness
Policy continues without payment
Extra premium: ₹1,500-3,000/year
Worth it: Depends on budget

Not Recommended Riders:

Accidental disability (expensive)
Hospital cash (better to buy separate health insurance)

Common Questions & Answers

Q1: “Isn’t term insurance a waste of money?”

Answer: No! Insurance is not waste, it’s protection.

Think This Way:

Do you buy car insurance? Yes
If no accident happens, is premium wasted? No
Same logic – Life insurance is for protection

Real Value: ₹12,000 premium gives ₹1 crore protection. If death occurs, family gets ₹1 crore tax-free. Worth it!

Q2: “What’s the benefit when policy ends?”

Think This Way:

Answer: You are alive! That’s the biggest benefit.

Think:

Think This Way:

You survived 30 years
You’re still earning for your family

That itself is a huge benefit

Plus: If you invested the premium difference, you’d have a huge corpus.

Q3: “Do agents recommend endowment just for commission?”

Answer: Yes, that’s the main reason!

Commission Structure:

Endowment: 20-35% of first year premium
Term: Only 10-15% of first year premium

Example: ₹2.8 lakh endowment premium

Agent commission: ₹70,000-98,000

₹12,000 term premium

Agent commission: ₹1,200-1,800

Obviously agents push endowment!

Q4: “I already bought endowment, what should I do?”

Answer: Decision depends on policy age:

0-3 years old policy:

Surrender it
Loss is minimal
Start term + SIP

3-7 years old policy:

Calculate surrender value
Compare with future returns
Most cases – surrender is better

7+ years old policy:

Continue it (you’ve paid a lot already)
But stop buying new endowment policies
For future, buy only term

Q5: “Online term vs Offline term – which is better?”

Answer: Online term is definitely better!

Reasons:

Lower premium: 15-20% cheaper
Quick process: Complete in 10-15 minutes
No agent pressure: Do your own research
Direct claim: Through online portal

Premium Comparison: ₹1 crore cover, 30 years, age 30

Online: ₹10,000-12,000/year
Offline: ₹13,000-15,000/year
Savings: ₹3,000-5,000/year

Step-by-Step: How to Buy Best Term Insurance

Step 1: Calculate Coverage Needed (Week 1)

Formula: Sum Assured = (Annual Income × 15-20) + Loans + Future Goals

Worksheet:

Monthly income: _______
Annual income: _______ × 20 = _______
Home loan: _______
Other loans: _______
Kids education: _______
Total Cover Needed: _______

Step 2: Research Top Companies (Week 1)

Check These:

Claim settlement ratio
Customer reviews
Financial stability (IRDAI ratings)
Premium rates

Shortlist 3-4 companies

Step 3: Compare Quotes Online (Week 2)

Websites to Use:

PolicyBazaar.com
Bankbazaar.com
Turtlemint.com
Direct company websites

Compare:

Premium rates
Coverage features
Riders available
Exclusions

Step 4: Medical Check-up (Week 2-3)

Process:

Company arranges medical tests
Blood test, urine test, ECG
Height, weight, BP check
Usually free of cost

Tips:

Be honest about health conditions
Don’t hide smoking/drinking habits
Bring medical records if any

Step 5: Documentation (Week 3)

Required Documents:

PAN Card
Aadhaar Card
Passport size photos
Income proof (salary slips, ITR)
Address proof
Bank account details

Step 6: Policy Issuance (Week 4)

After Approval:

Policy document received (email + post)
Verify all details carefully
Keep safe – physical + digital copy
Inform nominee about policy

Red Flags to Avoid

🚩 Red Flag 1: Agent Pushing Endowment Hard

What they say: “Term is waste, endowment gives money back”

What to do: Walk away. Do independent research.

🚩 Red Flag 2: Complex ULIP Plans

What they say: “Market-linked returns + insurance”

Reality:

High charges (5-7% of premium)
Lock-in 5 years
Usually poor returns
Better: Term + separate mutual funds

🚩 Red Flag 3: “Limited Period Offer”

What they say: “Discount this month only. Price will increase next month.”

Reality: Insurance prices don’t change monthly. It’s a pressure tactic.

🚩 Red Flag 4: Hiding Policy Details

What they do:

Don’t show policy document before signing
Rush the process
Avoid questions about exclusions

What to do:

Demand full policy copy
Read exclusions carefully
Take time to decide

Tax Benefits Summary

Section 80C Deduction:

Term Insurance:

Premium paid: Deduction up to ₹1.5 lakh
Example: ₹12,000 premium = ₹12,000 deduction

Endowment:

Premium paid: Deduction up to ₹1.5 lakh
Example: ₹2.8 lakh premium = ₹1.5 lakh deduction only

Section 10(10D) – Death/Maturity Benefit:

Conditions for Tax-Free:

Premium < 10% of sum assured (policies after 2012)
Premium < 15% of sum assured (policies before 2012)

Example: Sum assured: ₹1 crore

Max premium for tax-free: ₹10 lakhs
Most policies qualify

Bottom Line: Final Recommendation

The Golden Rule:

Buy Term Insurance + Invest the Difference

Practical Example:

Age 30, Need ₹1 crore cover:

Option 1: Term + SIP (Recommended)

Term premium: ₹12,000/year
Remaining: ₹2,68,000/year
SIP in mutual fund: ₹22,333/month
After 30 years:
- Insurance: ₹1 crore (if death)
- Investment corpus: ₹7.5 crores
- Total: ₹8.5 crores

Option 2: Endowment (Not Recommended)