When you start earning, it becomes your responsibility to run a livelihood, take care of your parents, support your family at times of crisis, enter new phases such as marriage, children, and many more. When you start thinking about savings and investments, there is no turning back from taking responsibilities until you are done with debts and other liabilities in life once you enter the employment phase.
This blog will first make you understand the two decent saving and investment options – Term Plan and Endowment Plan, importance, differences, and the best of them in the market.
This blog will help you understand,
- What is a term plan?
- What is an endowment or savings plan?
- What is the difference between a term plan and an endowment plan?
- Which is the best term plan to buy in India for 2022?
- Which is the best endowment to buy in India for 2022?
Term insurance policies are tailored to those responsible citizens and bread earners who want to build a safe and secure monetary cushion for their family in their unfortunate absence. Under the death benefit feature of term insurance, the beneficiary (decided by the life insured) shall receive the death benefit if the policyholder meets with death when the policy term is active. Most insurance companies don’t offer maturity benefits under term insurance, but exceptions are always there.
Financial experts believe that one should invest in insurance at a young age because the premium is low, and the future would be balanced and ample in terms of finances.
Buying insurance is not only necessary to leave a death benefit for your loved ones, but they also come with many more benefits in handy that will make your present and future more fruitful both in good and bad times.
Life insurance is a massive pool that includes many types of insurance that cater to the needs and requirements of different people, varying in terms of employment and socioeconomic status.
Here, term insurance is a wise choice because it helps avail other perks.
If anyone asks who needs to buy term insurance, the answer would be any soul who is the sole bread earner in the family or those with heavy-laden financial responsibilities. For instance, you are a family of four, and you are the only soul employed and running the family; then, it is one of the mandatory tools in your kitty as it would safeguard your family when they need money the most.
Term insurance also helps expand your existing coverage based on the happy additions in the family such as – marriage or childbirth, paving the way to make their life also secure.
Apart from other features and benefits, they also offer a tax-saving benefit. As per Section 80C of the Income Tax Act (1961), the insurance premiums are exempted from taxable income, providing loyal taxpayers a double bonanza by saving tax.
Note: Here, the sum assured one receives is tax-free but is liable to certain restrictions outlined in Section 10(10D) of the Income Tax Act.
When you hit adulthood, you can be part of term insurance and expand the plan as increasing responsibilities.
It acts as an economic pillar for decades; if you are battling a critical illness, this might be a rescue place, and there are riders (additional paid perks) that you can add to your plan to make it more inclusive as per your requirement.
Unlike other plans, an endowment plan is a type of life insurance that weaves a security net for life insured and helps the insured engage in a regular savings mode for a more extended period. Here, the life insured receives the maturity benefit at the end of the policy term.
For instance, you bought an endowment plan when you were 25. By the time you reach 45, you are receiving your maturity benefit, and the lump sum is ample to fulfill your long-driven dream of opening a bakery shop. Having savings for your long-term plan or objectives is vital because it helps you save and keep going ahead in life.
The life insured can utilize the money for various purposes such as – stress-free retirement phase, opening up a business, investing in a house, supporting children’s abroad education, child’s marriage, and many more.
Suppose we talk more about the benefits and features. In that case, an endowment plan pays the whole sum assured to the nominee(s) if the policyholder meets with untimely death (when the policy is active), or the entire amount is paid to the life insured live through the policy term.
In a nutshell, an endowment plan is a beneficial mixture that delivers the duty as a savings component and a lump sum maturity benefit.
Now, who should consider buying this plan?
If we listen to the experts, endowment policies offer a structured way to save money to fulfill future objectives.
Therefore, the ones with regular income, SME owners, and other professionals have a buffer-free income mode. If you belong to a middle or upper-middle class, you can consider this plan; the returns might not make you a billionaire but would be sufficient to complete the commoner’s specific dreams.
After getting detailed knowledge about both types of life insurance, let us count the differences. And they are as follows:
Sum Assured: To begin with, the sum assured in the term insurance policy is usually higher than the endowment policy. However, if one wishes to receive a higher sum assured in the endowment plan, they ought to pay higher premiums to reap a pricey benefit from the sum assured.
Death & Maturity Benefits: Death benefit is the main attraction in term insurance, as it acts as a pure life cover. It guarantees a sum assured to the beneficiary if the life insured meets with unfortunate death. Also, there is a zero maturity benefit feature if the life insured outlives the term plan. In comparison, an endowment plan has a two-way path that acts as a life insurance policy and a savings option. Like the term plan, the nominee receives the death benefit, but the life insured shall receive the maturity benefit if they outlast the policy period.
Premium: A term plan protects against hazards while requiring no further investment (apart from the riders). As a result, the premium for term life insurance is minimal. Whereas, an endowment plan comes with a maturity benefit, thus raising the premium. Furthermore, an endowment plan includes add-ons, which increases the premiums even more, which is why term insurance comes with lower premiums compared to endowment plans.
Payout Cycle: In a term plan, when the beneficiary receives the death benefit, they receive the sum assured in a lump sum, equal installments, or a combination of the two. While for the payout method in an endowment plan is made either in a lump sum to pay the sum assured in death benefit or as a maturity benefit when the life insured outlives the plan.
After understanding the differences between both the insurances, let us dig deeper to know the best available term plan in India that one can consider buying in 2022, and it is,
Aditya Birla Sun Life Insurance DigiShield Plan
Also known as Sabka Vala Term Plan is an extensive term insurance plan that holds an option for everyone. This robust term plan comes with 10 customizable options with perks for different audiences. The 10 options given by this ABSLI term plan are as follows:
Plan Option 1: Level Cover Option
Plan Option 2: Increasing Cover Option
Plan Option 3: Sum Assured Reduction Option
Plan Option 4: Whole Life Option (Level Cover)
Plan Option 5: Whole Life Option (Sum Assured Reduction Cover)
Plan Option 6: Income Benefit
Plan Option 7: Level Cover plus Income Benefit
Plan Option 8: Low Cover Option
Plan Option 9: Level Cover with Survival Benefit
Plan Option 10: Return of Premium (ROP)
Some of the features of the ABSLI DigiShield Plan are as follows:
Death Benefit: The beneficiary will receive the death benefit if the life insured meets with an untimely death. However, always check with the option you have opted for under the plan.
Survival Benefit: Those who have opted for option 9 shall receive the survival benefit. As per this feature, if the policyholder survives the policy anniversary after they touch their 60 then, a monthly survival benefit of 0.12% of the guaranteed sum shall be given to the life insured at the beginning of the first policy month anniversary. It shall follow until the term plan expires or the life insured dies.
Terminal Illness Benefit: For instance, you fall under the age of 80 and are diagnosed with terminal illness then, 50% of the applicable sum assured on death, up to a limit of 2 crores, shall be paid as a lump sum immediately to the life insured if the term plan is still active and future premiums would be canceled.
However, if the policyholder dies within the active term plan, the sum assured on death will be deducted by the price of the terminal illness benefit that’s already paid.
To know more about this plan, click here – ABLSI DigiShield Plan.
Now, it is time to unravel the best endowment or savings plan one can consider buying in 2022, and it is,
Aditya Birla Sun Life Insurance Assured Income Plus
As discussed earlier, an endowment plan can be looked upon as a savings plan where you follow a steady saving cycle. Under this plan by the ABSLI, the life insured invests for a short term, and they will receive the guaranteed profits for a long time.
This plan offers life insurance coverage during the policy and guaranteed income for 20, 25, or 30 years to add value to your future objectives and dreams.
Survival Benefit: Under this feature, following the expiration of the plan, the life insured shall receive income benefit with respect to the benefit pay out frequency selected. For better clarity go through the benefit payout period.
Maturity Benefit: Under this benefit, the guaranteed amount (lump sum) is derived using components defined by an 8.70% discount rate. Here, towards the end of the plan, the insured has the opportunity to employ the commutation option, where the commuted value of the outstanding benefits shall be paid as a lump sum rather than the Income Benefits (or RoP).
Death Benefit: Like other plans, the death benefit shall be paid to the nominee if the policyholder meets with an untimely demise.
Add-Ons: Certain extra benefits can be availed if you pay extra. And those benefits are as follows:
- ABSLI Critical Illness Rider
- ABSLI Surgical Care Rider
- ABSLI Hospital Care Rider
- ABSLI Accidental Death Benefit Rider Plus
- ABSLI Waiver of Premium
Life is all about making decisions, but make sure you choose the right insurance from a trusted brand because purchasing insurance can make a difference in your life. It might not affect you now, but the results shall surely be visible in the future.