Endowment Plan vs Term Plan: Which Life Insurance Should You Choose?

Life insurance is supposed to do one thing, and that’s to take care of your family when you’re no longer around to provide for them. However, over time, it’s been repackaged and overcomplicated by products that promise everything: protection, savings, returns, bonuses, and even dreams. That’s where the confusion starts. Especially when you’re faced with a choice: endowment plan vs term plan? One is simple, transparent, and does exactly what it’s supposed to. The other combines multiple features into one product, which can sometimes make it harder to understand what you’re truly getting. In this guide, we’ll break down both options to see which type of plan would make more sense for you.

If you need help choosing the right policy, feel free to chat with us on WhatsApp or book a call at a convenient time—no spam — just honest insurance advice.

Endowment Plan vs Term Plan: Overview

What is a Term Plan?

A term insurance plan is a pure protection product. You pay a premium for a fixed duration (the "term"), and your nominee receives the sum assured if you pass away during that period. There is no payout if you survive the policy term (unless it’s a return of premium plan, which comes at a higher cost). While the lack of maturity benefit might make some people question it, an important point to remember here is that the goal isn’t to get returns, but to achieve maximum coverage at the lowest possible cost. 

There are no hidden bonuses. No savings components. No investment risks. Just one clear promise: if you’re not around, your loved ones won’t be left financially stranded.

If your main priority is securing your family’s future without overcomplicating things, term insurance is precisely what you need.

What is an Endowment Plan?

An endowment plan combines insurance with savings. It pays a lump sum either on death or at the end of the policy term, whichever comes first. You get guaranteed returns along with potential bonuses from the insurer. But here’s the catch. The pitch of getting a payout if something were to happen to you and getting your money back if nothing happens sounds like a win-win, but that’s not quite the case. When insurance tries to double up as an investment, it ends up doing a poor job of both. 

A big chunk of your premium goes towards the savings component, which means the life cover is much lower than what you'd get with a term plan. At the same time, the returns on your savings are usually modest, often lower than what you’d get from a basic PPF or even a fixed deposit investment.

Plus, your money is locked in for years, and there’s very little flexibility if your financial goals change along the way. In short: you’re paying more, getting less cover, and settling for below-average returns — all for the comfort of a bundled product that doesn’t quite deliver on either front.

Let’s understand this better by looking at the key differences of endowment plan vs term plan. 

Key Differences of Endowment Plan vs Term Plan

Understanding the differences between term insurance vs endowment plan is crucial when selecting the right life insurance product. Both serve distinct financial goals and cater to different needs. Below is a detailed comparison based on key parameters:

1) Purpose

• Term Plan: The primary goal is pure protection; to provide financial security to your family in case of the policyholder’s untimely death.
• Endowment Plan: Combines protection with savings, offering a life cover along with a lump sum payout at maturity if the policyholder survives the term.

2) Premiums

• Term Plan: Premiums are low as these policies only offer risk coverage without any savings or investment component. For example, for a 30-year-old non-smoking male, a ₹1 crore plan would cost somewhere between ₹ 12,000 and ₹ 14,000.
• Endowment Plan: Premiums are higher because a portion is allocated towards investments, providing maturity benefits in addition to life cover.

3) Sum Assured

• Term Plan: Offers a higher sum assured (usually in crores) at a relatively low cost, making it an ideal option for comprehensive financial protection.
• Endowment Plan: The sum assured is lower for the same or higher premium compared to term plans due to the inclusion of a savings element.

4) Maturity Benefit

• Term Plan: Typically, there is no maturity benefit, unless it is a Term Plan with Return of Premium (TROP), which refunds the premiums paid; however, this option is significantly more expensive and not recommended.
• Endowment Plan: Offers guaranteed maturity benefits, including potential bonuses, if the policyholder survives the policy term.

5) Withdrawals

• Term Plan: Withdrawals are not allowed, as there is no cash value accumulated.
• Endowment Plan: Withdrawals may be permitted, subject to the policy terms, particularly in participating plans with accumulated bonuses.

6) Riders

• Term Plan: Offers add-ons or riders, including critical illness, accidental total and permanent disability benefit, and waiver of premium, for enhanced coverage.
• Endowment Plan: This plan also offers riders, although their availability and applicability may vary depending on the policy.

7) Payout

• Term Plan: Offers a lump sum, monthly income, or a combination as a death benefit to the nominee.
• Endowment Plan: Pays a lump sum either on death or at maturity, providing a dual benefit.

8) Tax Benefits

Both Plans are eligible for tax benefits under Section 80C (premium paid up to ₹1.5 lakh per financial year) of the old regime and Section 10(10D) (payouts received) of the Income Tax Act, 1961, subject to certain conditions. 

Now that we've explored the key differences between endowment and term plans, it's evident that term plans focus purely on protection, making them especially valuable for individuals seeking maximum coverage at a low cost. Let’s dive deeper into the benefits of a term plan to understand why it might be the right choice for you.

Benefits of a Term Plan

A term plan isn’t just affordable; it’s built to do one job well: protect your family when you can no longer. Here’s why it works so well:

1) Low Cost, High Coverage

You can get coverage of ₹1 crore to ₹2 crore for the price of your monthly OTT subscription or even weekend dinners, making it the most cost-effective way to secure your family’s future. In a term plan, you’re leveraging every rupee of premium you pay to secure a significantly higher sum assured, making term plans the most cost-effective way to safeguard your family’s future. 

2) Pure Protection, No Distractions

As there are no saving components or investment promises involved, term plans can do an excellent job at protecting the people who rely on your income. If something happens to you, your family gets the financial support they need to stay on their feet.

3) Tax Benefits Still Apply

As discussed above, term plans are also eligible for tax benefits, making premiums deductible under Section 80C and the death benefit tax-free under Section 10(10D). 

4) More Freedom with Your Money

As you’re not locked into low-return insurance products, you are free to invest the difference in premium between term and endowment plans in better options such as mutual funds, PPF, NPS, FDs, or anything else that fits your needs. 

Now, for a more balanced understanding of endowment plan vs term plan, let’s also look at the benefits of an endowment plan to compare them side-by-side.

Benefits of an Endowment Plan

At first glance, endowment plans seem like a wise choice, especially if you’re looking for something that offers both insurance and savings in one package. Here’s why they appeal to many conservative investors:

1) Dual Benefit in One Policy

An endowment plan gives you life cover and a maturity benefit. So if something happens to you, your family gets a payout. If not, you receive a lump sum at the end of the policy term.

2) Encourages Disciplined Saving

For individuals who struggle with regular saving, endowment plans serve as a forced savings tool. You continue to invest over time, building a corpus for long-term goals such as retirement or your child’s education.

3) Steady (But Modest) Returns

Endowment plans typically offer returns in the range of 4–6%, along with possible bonuses. Since they’re not market-linked, the value of your savings doesn’t fluctuate much, but the returns are also capped. This makes them suitable for extremely conservative investors who prioritize peace of mind over higher returns.

While these benefits might look reassuring, they come with trade-offs. And in most cases, those trade-offs outweigh the positives, especially if your main goal is either strong financial protection or better long-term returns.

What’s Wrong with Endowment Plans?

Endowment plans often try to do too much at once and end up underdelivering on both protection and returns. Here’s what you need to watch out for:

1) Mediocre Returns: 

Most plans generate 4–6% returns, which barely keep up with inflation, which means your money loses value in real terms over the long run.

2) High Commissions: 

Agents heavily push these products because of the high commissions involved and not because they’re the best choice for your needs.

3) Low Life Cover: 

You pay more, but get far less protection. Why? Because your premium is split between cover and investment.

4) Lack of Transparency: 

Returns are often illustrated optimistically. Most people don’t realize that the actual internal rate of return (IRR) is lower than a basic FD.

So, while endowment plans offer comfort through bundled benefits, they may not be the most efficient way to either grow your wealth or protect your family.

Now that we’ve looked at both term and endowment plans: the pros, the cons, and the trade-offs, let’s get to the fundamental question: Which one makes sense for you in the battle between endowment plan vs term plan?

In the next section, we’ll break down how to decide based on your goals, income, and what you’re genuinely trying to protect or build.

How to Choose the Right Plan? Endowment Plan vs Term Plan

Now that you know what term and endowment plans offer and where they fall short, the next step is figuring out what fits your needs. Here's how to think about it:

1) Need Pure Protection?

If your primary goal is to safeguard your family's future, a term plan is the clear choice. It provides you with maximum life cover at the lowest cost, without requiring investments.

2) Want Savings + Guaranteed Returns?

If you're looking for a low-risk way to save and don’t mind modest returns, an endowment plan might suit you. 

Just remember: you’re paying more for bundled benefits. A better choice would always be to get a term plan to secure your family’s financial future while investing the premium difference in a mutual fund, PPF, NPS, or an FD of your choice. 

3) Looking at Premium Affordability?

Term plans win in this scenario because you can get a ₹1 crore life coverage for as low as the price of a pizza (₹1000/month), which is nearly impossible with an endowment plan.

4) Assessing Risk Appetite?

Endowment plans are low-risk, but they also offer lower returns. If you're okay taking calculated risks, you’ll likely get better long-term returns by pairing a term plan with investments like mutual funds or NPS.

5) Considering Your Age & Life Stage?

• Young and just starting your career? Go with a term plan. It's affordable and locks in low premiums from the start.
• Mid-career with financial goals? Stick to a term plan for protection, and invest separately for growth so you get flexibility and better returns.

No one-size-fits-all, but most people don’t need complicated combos. A simple term plan, combined with smart investing, usually does the job better, more cost-effectively, and with greater control.

Best Term Insurance Plans in 2025

Note: For a premium comparison, we’ve taken the example of a 30-year-old salaried male, a non-smoker, living in Delhi, with a 35-year term insured for a sum of ₹1 crore.

Disclaimer: The data is indicative as premiums are subject to periodic revision and vary with age, medical history, smoking/tobacco consumption habits. Please verify the latest premiums for accuracy.

Ditto’s Take on Endowment Plan vs Term Plan

When life insurance first became popular in India, due to orthodox thinking, many people focused on getting their money back with some returns. This is why endowment plans, with their high premiums and agent commissions, became the go-to choice.

But times have changed. People are more financially savvy now. They understand that term insurance, paired with smart investments, often delivers better results.

At Ditto, we follow a strict but straightforward rule: we only recommend products we’d buy ourselves. That’s why our name is Ditto; we mirror what makes sense for real people like us. And for most, that means term plans.

Here’s why:

• Endowment plans typically offer fixed returns of around 4–6% in the long run, which often barely beats inflation.
• Term insurance provides pure, affordable protection with significant leverage. Plus, when you invest the difference separately—in options like PPF, NPS, mutual funds, or fixed deposits, you get better growth potential and flexibility.
• Term plans offer a better cost-to-benefit ratio for protection.
• Endowment plans suit those who want disciplined saving combined with guaranteed returns, but if you’re mixing insurance with investment, it rarely works out well.

We’re not saying all endowment plans are evil—some may very well be useful and offer decent returns. Additionally, endowment plans can be considered if you’re ineligible for term plans due to factors like age, medical history, or income. After all, some protection is better than none.

Our advice? Buy term insurance for protection and invest the rest on your own. However, if you’re still considering an endowment plan, ensure that you:

• Calculate the Internal Rate of Return (IRR) of the policy. If it’s lower than what you’d get from a PPF or fixed deposit, think twice.
• Read the benefit illustration and policy wording documents carefully before committing.

Remember, insurers must provide these documents. And if you ever get stuck understanding them, you can even use AI tools like ChatGPT to help break down the details.

At Ditto, transparency and wise choices are our priority because insurance should protect you, not confuse or cost you more than it should.

Why Choose Ditto for Term Insurance?

At Ditto, we’ve assisted over 7,00,000 customers with choosing the right insurance policy. Why customers like Piyush below love us:

✅No-Spam & No Salesmen

✅Rated 4.9/5 on Google Reviews by 12,000+ happy customers

✅Backed by Zerodha

✅100% Free Consultation

You can book a FREE consultation here. Slots are filling up quickly, so be sure to WhatsApp or book a call now.

Conclusion on Endowment Plan vs Term Plan

When deciding between term plan vs endowment plan, clarity about your financial goals is essential. Term plans excel in providing pure, affordable life cover, ensuring your family’s financial security without unnecessary costs or complexities. Endowment plans, though attractive for combining savings with insurance, often underdeliver in returns and provide lower coverage at a higher premium. For most people, the more innovative approach is to choose a term plan for protection and invest the difference separately to achieve better growth and flexibility.

FAQs on Endowment Plan vs Term Plan