TERM VERSUS ENDOWMENT LIFE INSURANCE

LIFE INSURANCE

A life insurance policy is a legally enforceable contract issued by the insurer in consideration of the application and the payment of premiums.Needless to assert , that it provides risk coverage in event of the death of an individual.t is essential to have a life insurance to provide financial protection and security for surviving family members upon the death of the insured person. Insurance to cover a particular need such as paying off a mortgage or other debt upon the insured’s death.The parties are insured, applicant-policyowner, insurer and beneficiary.Many life insurance companies try to contact beneficiaries if the beneficiaries don’t contact them first as becmpany, it may be possible to turn term life into whole life insuranause there’s no automatic process that tells them about policyholder deaths.

IRDA ACT

Insurance Regulatory and Development Authority of India (IRDAI) is the controlling body which regulates the rules and regulations related to insurance in India. This law mentions the rights, duties, and the functions of the IRDA under Section 14 of the IRDA Act, 1999 that the IRDA is supposed to carry out. The law clearly states that IRDA is to regulate, promote, and ensure that the insurance business in India grows in a fair and orderly manner. This law also lays down the code of conduct that insurance intermediaries are supposed to follow.

Life insurance policies often come with contingencies that can void coverage to the policyholder.Like if the policyholder takes their own life or dies while performing an illegal act, life insurance claims may be denied.But generally, reasons life insurance won’t pay out to a beneficiary generally include factual errors in the application, failing to disclose medical conditions, mistakes in naming or updating beneficiaries and allowing a policy to lapse due to nonpayment.

What happens if there is failure to distribute the amount of compensation received on nationalisation of insurance business of company among members, where required to be so distributed? This was dealt in Hindusthan Co-operative Insurance Society Ltd. In re [1961] 31 Comp. Cas.193 (Cal). In this case, the insurance business of the company was nationalised in 1956 and a compensation of Rupees thirty-five lakhs was received by it. The directors did not call any annual general meeting thereafter. In January 1959, the Board resolved to call a general meeting and pass a resolution to continue the company and carry on other businesses authorised by the Memorandum with the compensation money received by the company. Section 39 of the Life Insurance Corporation Act envisaged distribution of compensation to shareholders and dissolution of the company. The question was whether the conduct of directors was oppressive. Held that, the resolution and the persistent conduct of the respondent in the affairs of the company since 19-1-1956 clearly would be that they never intended to distribute the compensation money amongst the shareholders, who were entitled thereto, but to hold it in their hands and at their disposal and benefit by the strength of their majority or controlling voting power. This conduct of the respondent was no doubt oppressive to the company and to the applicant’s minority shareholding in the company.

Term Life Insurance

Term life insurance requires premiums which are typically based on a person’s age, overall health, and life expectancy. As term life insurance is only effective for a temporary amount of time and only pays out upon the death of the insured individual, it’s one of the most affordable types of life insurance.Each has its own set of benefits which make them well-suited for individuals of all ages. However, term life insurance in general is best suited for younger people with families.

Term insurance is a type of pure life insurance policy that provides life insurance cover against the fixed premium paid for a specified ‘term’ of the year.This type of life insurance that guarantees payment of a stated death benefit if the covered person dies during a specified term. Once the term expires, the policyholder can either renew it for another term, convert the policy to permanent coverage, or allow the term life insurance policy to terminate.Term life premiums are based on a person’s age, health, and life expectancy.Depending on the insurance coce.You can often purchase term life policies that last 10, 15, or 20 years.However, if the policy expires before your death, there is no payout.The amount payed as premium is also forfeited.This is a form of variable life inurance.Variable life insurance is a form of permanent life insurance where the cash value is invested in a number of sub-accounts, similar to mutual funds. Variable life insurance policies also offer certain tax benefits for policyholders, such as the ability to use the cash value on a tax-benefited basis. Variable life insurance acts as a permanent renewable term life policy for the insured with a cash value.Variable life insurance policies can also be used as investment accounts which can be passed on free of tax.

Endowment Life Insurance

An endowment policy is essentially a life insurance policy which, apart from covering the life of the insured, helps the policyholder save regularly over a specific period of time so that he/she is able to get a lump sum amount on the policy maturity in case he/she survives the policy term.Endowment plans are life insurance policies with dual purpose. An endowment policy can be used by you to build a risk-free savings corpus, while providing financial protection for family in case of an unfortunate event. This simplicity of an endowment plan has over the years made it an attractive savings plan for all.It provides life insurance protection together with a large savings and investment element. It has surrender values, loan values and paid-up values. Non-forfeiture privileges are included.It is simple, upfront and transparent. Endowment plans are designed to pay back a lump sum amount after the policy term which is also known as maturity or on death of the policyholder. It provides a living benefit to the policyholder as a payouts along with insurance coverage.

An Endowment plans serves dual purpose savings and protection.On maturity, a pre-determined will be paid to the policyholder.In case of demise, the beneficiary would be entitled to the sum assured or the maturity amount, less outstanding premiums, whichever is higher.The returns are earned on a compounding basis along with some loyalty addition.One can also get loans for unforeseen expenses.It also provides tax benefits under section 80C.The returns are also tax exempted under section 10 (10D).In addition to the basic benefits discussed above, endowment plans are ideal for child education and marriage savings. If you are looking for a plan which gives you guaranteed returns along with tax benefit then an endowment plan is the most appropriate option. It is a right policy for the people of any age group and saving capacity. An endowment plan will bring stability in your financial portfolio.

DIFFERENCE

Here are some primary points of distinction between term life insurance and endowment life insurance.

BASISTERMENDOWMENT
CoverPure life cover.No maturity benefit.Life cover as well as a savings option. Your nominee gets the death benefit in case of your unfortunate demise. If you outlive the policy period, you get a maturity benefit.
PriceNo return. Only risk Cover.Less expensiveA maturity benefit, along with loyalty additions.More expensive
Sum AssuredIt is highest since risk covered fulfiling need for protection.Not as high.Plan fulfills the need for saving.
Aim of Coverfinancial help to your nominees in case of your demiseHelp you save for your future goals. It provides guaranteed returns and caters to the need of future savings.
Pay out optionsThe policyholder has the option to customize the payout option based on his/her family needs it can be lumpsum, monthly or a combination of both.The payout is lump sum either on the death of the policyholder during the policy term or as a maturity benefit on completion of the policy term
ForfeitureJust death benefit so amount is  forfeited if death does not occur.Death plus maturity benefit so no forfeiture takes place.

CONCLUSION

Viewed from the angle of insurance, it is term life insurance which is  more preferable simply for the reason of securing better insurance coverage. But nonetheless ,endowment  life insurance is also good if one prefers some element of investment along with their insurance cover as it is mostly a hybrid form of insurance with a mix of investment and insurance.However, these are merely bird’s eye view of general choices of people while opting for insurance and such preferences of often tend to vary according to the people’s choices and preferences

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

If you are interested in participating in the same, do let me know.

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In the year 2021, we wrote about 1000 Inspirational Women In India, in the year 2022, we would be featuring 5000 Start Up Stories.

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