Term vs Endowment Insurance: Understanding the Difference

Quick answer

Term insurance provides pure death cover for a fixed period at a low premium. Endowment/money-back/ULIP combine cover with savings — but the savings component typically earns 4–6% returns, far below what separate investments could achieve. For most people, separating protection (term) and investment (mutual funds) is more efficient.

When this matters

This is useful when you want to compare scenarios using your own numbers instead of generic rules. It is designed for Indian households using Niyamfin calculators for private, browser-side estimates.

Key numbers or assumptions

• Income replacement method: cover = 10–12× annual income + outstanding debts + goals − existing savings.
• Surrender value of an endowment plan in early years is often significantly less than premiums paid.
• IRDAI mandates a free-look period of 30 days for all policies — you can return and get a refund.

Example calculation

Annual income ₹8L: suggested cover ≈ ₹80–96L. A ₹1Cr term plan for a 30-year-old might cost ₹8,000–12,000/year. An equivalent endowment plan would cost ₹40,000–60,000/year for a fraction of the cover.

Common mistakes

• Buying endowment to 'save tax' — the return net of premium is often below FD rates.
• Surrendering a term plan after a few years thinking it's 'wasted' money — that's the point of insurance.
• Not reviewing cover after major life events (marriage, child, home loan).

What to do next

Use the term insurance calculator to estimate the illustrative cover you need. Use the insurance policy return calculator to check the implied CAGR/XIRR on any existing endowment plan you hold.

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