Endowment insurance is a type of life insurance that pays out a fixed amount of money after the policyholder dies. Whole life insurance is a type of life insurance that provides a death benefit and cash value, which builds up over time. Whole life insurance protects the insured from the financial consequences of death. Let’s see the two types of insurance features, benefits, and costs. It will help you decide which is best for your needs.
What is Endowment Life Insurance Policy?
An Endowment life insurance policy is a type of life insurance plan that apart from covering the life of the insured against uncertain death, helps to save a certain amount of money regularly over some time. In short, an endowment policy consists of both Insurance coverage and the Savings option. This amount saved under the endowment life insurance policy is known as the maturity amount and is paid to the policyholder in case he/she survives the policy period or dies during the policy period.
This savings component is paid to the nominee in case of the death of the policyholder or to the policyholder in case of maturity if the policy is a survival benefit and can be used for Children’s education, Marriage expense, or purchasing a home. Thus any term insurance policy with a saving component and insurance component can be considered an Endowment policy.
Types of Endowment Insurance Policy
There are two types of endowment insurance policies, namely with profit and without profit.
- Full Endowment/With Profit Endowment: Under the Full/With Profit endowment plan, a basic sum is assured to the policyholder at the start of the plan. However, the final pay-out is comparatively much higher than the basic amount since it combines specific bonuses announced by the company during the plan's tenure. Once declared, the bonuses become a part of the policy and are received by the beneficiary upon a claim or after maturity.
- Non-Profit Endowment: In the case of a non-profit endowment plan, a predetermined lump sum amount is payable at the time of maturity or to the beneficiary in case of the policyholder's demise, whichever occurs earlier. However, unlike full endowment plans, they come without any bonuses, and the sum remains unchanged. These are fully guaranteed in nature.
- Unit Linked Endowment: Under Unit Linked policies, the insurance premiums are directed into multiple units held under a specific investment fund which can be chosen by the policyholders.
- Low-Cost Endowment: This endowment plan has been introduced to allow individuals to accumulate the funds which have to be paid after a specified period, usually a mortgage.
Features and Benefits of Endowment Life Insurance Policy
- Death/Survival benefits: An endowment policy helps build a corpus for the future and provides financial protection to your family. The payout for survival benefit and death benefit of an endowment plan is higher than that of a pure life insurance policy i.e. Term Plans.
- Higher returns: An endowment policy allows you to save more for the future. In case of the demise of the insured, the beneficiary/nominee of the policy gets the sum assured along with bonuses. Also, the insured is allowed to get the sum assured if he/she outlives the policy.
- Low-risk investment: An endowment policy is your low-risk investment avenue. In comparison to Mutual Funds and ULIPs, your life insurance endowment policy has a lower risk because your money doesn't directly go into equity funds or the stock market.
- Flexibility in cover: You can enhance the base plan to get additional insurance against critical illnesses, disability, and accidental death. This additional bonus coverage is called riders. You will have to pay some extra amount over and above your base premium to add riders to your base plan.
- Maturity: The policyholder gets a maturity benefit upon the end of the term. The policyholder receives a sum assured and a bonus for the duration of the plan. The sum assured from the maturity benefit is exempted from tax up to a limit.
- Tax benefits: The policyholder is entitled to get tax exemption on premium payments, maturity, and final payouts under Section 80C and Section 10(10D) of the Income Tax Act, 1961.
What is Whole Life Insurance?
Whole life insurance is the extension of the term insurance policy. In whole life insurance, the insurance coverage is provided till the death of the policyholder or till attaining 99 years of age. Since the coverage is for a complete lifetime, it is known as Whole life insurance. While the term insurance policy has a particular period for which the coverage is offered the whole life insurance policy is covered for the lifetime of the policyholder.
All the other terms and conditions would be the same as the term insurance policy except for the fact that the chances of getting the claim are higher in the whole life insurance as the coverage is till the death of the policyholder. Since the coverage is till the death of the policyholder, Survival benefit would be possible under the whole life insurance policy in rare cases if the policyholder survives the policy period.
Types of Whole Life Insurance
There are different types of whole life insurance plans available in the market such as
- Non-Participating Whole Life Insurance: A non-participating whole life insurance policy is a traditional life insurance policy. It has a level premium and face amount during your entire life. The cost of a non-participating whole life insurance policy is low and fixed costs and relatively low out-of-pocket premium payments. As a non-participating policy, the plan does not pay any dividends and does not receive any bonus facility.
- Participating Whole Life Insurance: Participating whole life insurance policy is also a traditional life insurance policy. Participating in a whole-life policy pays dividends and offers benefits along with bonuses. In participating whole life insurance, the premium paid by the insured is invested by the company; the profit earned through the investment is paid as bonuses to the policyholder.
- Level Premium Whole Life Insurance: In level premium whole life insurance, the premiums are paid by the insured throughout the life until death. Risk-benefit is for the entire duration of life and the amount of the sum assured is paid after the death of the insured.
- Limited Payment Whole Life Insurance: In Limited Payment Whole Life Insurance, the insured person will be required to pay premiums for a limited period and receive lifetime protection. In this type of life insurance plan, policyholders have to pay premiums for a specified number of years like 10 years, 20 years, etc.
- Single Premium Whole Life Insurance: In a single premium whole life insurance plan, the entire premium of the life insurance policy is paid in a single lump sum and it is considered an investment insurance product. In a single premium whole life insurance policy a large sum assured amount is paid as a guaranteed payment to the beneficiary of the policy.
- Indeterminate Whole Life Insurance: An indeterminate whole life insurance policy is an ordinary whole life insurance policy. It offers policyholders the option of adjusting their premiums. Based on its estimate of its current earnings, cost of expense and mortality, etc. In case there are any changes the insurer will charge policyholders the present premium amount.
Benefits of Whole Life Insurance Policy
- Whole Life Coverage: Whole life insurance provides life cover to the policyholder until 100 years of age. It offers guaranteed death benefits to the nominee of policy in case of the unfortunate demise of the policyholder.
- Financial Protection: A Whole life insurance policy helps to minimize the risk of financial difficulties which would be faced by the families in case of the sudden death of the policyholder. In whole life insurance, the insurance provider pays payment of guaranteed sum assured along with bonuses. As a result, even in the policyholder’s absence, his family stays protected.
- Guaranteed Premium: The premium interest rate of the whole life insurance policy is set for the entire tenure of the policy and it does not increase or decrease throughout the term period of the policy.
- Tax Benefits: Life insurance offers tax dual benefits under prevailing laws as per the Income Tax Act, of 1961. The life insurance premium paid can be availed as a tax deduction under section 80C. You can avail of a deduction of up to Rs.1.5 lakh under Section 80C of the Income Tax Act. The maturity insurance plans may be completely tax-free. This tax benefit is under Section 10(10D) of the Income Tax Act.
- Loan Facility: The insured can opt for a loan facility against the whole life insurance plan. However, a loan can only be availed if the insured completes 3 policy years and if all the premiums of the policy are dully paid.
Comparison Table of Endowment and Whole Life Insurance
||Whole Life Insurance
||An endowment policy is a type of life insurance policy. It consists of both Insurance coverage and the savings option.
||Whole life insurance is the extension of the term insurance policy. In whole life insurance, the insurance coverage is provided till the death of the policyholder or till attaining 99 years of age.
||Lower as compared to whole life insurance
||Higher than endowment policy
||The cost of premiums every month is comparatively expensive and premiums are paid over a shorter period.
||The higher premium must always pay out eventually and builds a cash value
|Non-Participating Whole Life Insurance
Participating Whole Life Insurance
Level Premium Whole Life Insurance
Limited Payment Whole Life Insurance
Single Premium Whole Life Insurance
Indeterminate Whole Life Insurance
||Death benefits are paid at the time of death or a lump sum paid on maturity.
||Death benefits paid on death
Life insurance is a financial tool that helps you to provide financial support for loved ones if they are no longer alive. When it comes to choosing the best life insurance between endowment and whole life insurance, there are a few factors that you should consider such as current financial situation, number of dependents, age, health, etc.
Different insurance providers offer different types of benefits under specific terms and conditions. Remember to compare life insurance policies to find the best plan. PolicyBachat is an online insurance web aggregator which helps in selecting insurance policies online for its customers based on the customer’s requirements. So, compare policies from top insurance companies and select the best life insurance policy which fits all your requirements.