Term Vs Endowment Plans

- Chellamuthu Kuppusamy

In response to the previous post "Jeevan Anand - Unique insurance plan" Vinod has commented:

"My experience on this:

Policy is good.

Since this is mainly life insurance, the cover to premium required ratio did not fit me well.

Since I was looking at life cover that could substitute my income (to a good extent) so financially my family is not in the woods to pay up all the emi's and liabilities. The premium required was too high. For those who can afford the premium this policy is great.
I have now decided to go for term policy for covering life and with the rest of money invest wisely (as much as possible ;) )

Best regards,
Vinod
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Follow up communication:

Hi Vinod,
I am glad you said this. That is precisely how one should view insurance. But in India insurance is not considered as an instrument for life cover alone. People tend to ask, “What do I get back after paying my premium?” A reply that their family is protected against the financial loss due to an unlikely ecent of their sudden demise does not suffice.

That’s why penetration of term insurance plans are very very low in our country. Data reviels that only 26 per cent are insured in India. That too the average sum assured per policy is just over Rs 90,000. This is never going to be sufficient.

As you said, premium to sum assured ratio is high in India, because we rarely have term insurance policies. Invariably every policy holder expects a maturity value. This leave the insurers with no choice but to promote emdowment plans.

For instance, in one of LIC’s term assurance plans Anmol Jeevan – I, I would have to pay just Rs. 2,762 per year for a life cover of Rs 10 lakhs. In Amulya Jeevan, I would pay just Rs 5,850 per year for a life cover of Rs 25 lakhs.

Whereas as in Jeevan Saral (an Endowment plan), I would only get a coverage of Rs 1.25 lakhs for an annual premium of Rs 6,000.

But as everybody says, endowment plans gives back a maturity benefit which is not the case with term assurance plans. That does not matter if you are a streetsmart investor.

Jeevan Anand - Unique insurance plan

Difference between term insurance and endowment plans:

Term insurance plans are like the insurance for motor vehicle and mediclaim. Insurance company pays full Sum Assured when risk occurs. Otherwise premium paid will be with the insurer.

Two important term assurance plans offered by LIC are"
a) Anmol Jeevan – 1 (Plan 164)
b) Amulya Jeevan – 1 (Plan 190)

In India life insurance is treated more as a saving instrument than being viewed from pure insurance point of view. Therefore, though plans are designed to provide risk cover when the policy is in force, they also give a big chunk at the time of maturity.

Such plans are called endowment plans. Most of the insurance plans in India are endowment plans. For a given sum assured, premium of endowment plan is more than any term assurance plan because they cover the risk of death as well as survival benifit.

At the time of maturity for endowment plans LIC pays the following
• Sum Assured
• Bonus
• Final Additional Bonus (for certain policies)
• Guaranteed additions (for certain policies)
• Loyalty Bonus (for certain policies)

As per IRDA regulation all insurance companies have to distribute 90 % of their profit to the policyholders in the form of bonus. LIC gives 95 % of its profit to the policyholders. Unlike private insurance companies, LIC invests the money in secured avenues and its marketing cost is much lower when compared with private players.

Now let me brief a popular endowment plan and their unique features.

Jeevan Anand (Plan 149)

 Example:
Age 32
Sum assured Rs 5,00,000
Term 16 years

Scenario 1:

If death occurs between 32 & 48 years of age, nominee gets Rs 5 lakhs + bonus. If the death was caused by an accident, nominee gets Rs 10 lakhs + bonus

Scenario 2:
Insured person lives through policy period of 16 years. At the time of maturity he gets sum Assured Rs 5 lakhs + bonus

In other plans, life cover ends with the maturity. In Jeevan Anand, life cover continues even after the maturity period when the policyholder will not be paying any premium at all.

If death occurs in at the age of 49 years or 70 years or 95 years, nominee will get Rs 5,00,000. If death is caused by accident, nominee will get Rs 10,00,000. (age limit for double accidental benifit is 70 years)

Uniqueness about Jeevan Anand is that it is a combination of whole life and end assurance plans.

For further details please contact Selva at insurance.selva22@gmail.com

or

call 9941924240 / 9941258394