You've almost certainly heard this comparison before. The agent shows you a term plan first: "Sir, you'll pay premiums for 30 years and get nothing back if you live. Why throw money away?" Then comes the endowment plan. "But here, you get protection and a guaranteed maturity amount. Much better, right?"
It's a line that sounds convincing and makes you think about value. This article breaks down both plans and explains why the usual comparison can be misleading, and how keeping insurance and investment separate often works better.
What’s your natural preference when you think about insurance — pure risk cover or savings-linked products? Feel free to share your view in comments.
How Sales Pitches Shape Perceptions - And Plan Fundamentals
Agents often use the maturity benefit of endowment plans to make term insurance appear less valuable. This comparison can be misleading because it ignores the fundamental difference between the two products. For the same premium amount, a term plan offers far greater life cover, while an endowment plan divides your money between insurance and a low-growth savings component.
What's a term plan?
A term plan is straightforward. It provides pure protection for a specific period, usually 20 to 30 years, covering your main financial responsibilities such as home loans or children's education. If the policyholder passes away during this period, the nominee receives the full sum assured, tax-free. If the term ends and no claim is made, the policy simply ends, just like any other risk cover.
What's an endowment plan?
An endowment plan works differently. It combines insurance with savings and pays a lump sum either on death or at maturity. Because part of the premium is used for the savings portion, the overall cost is much higher. The returns typically resemble fixed-income instruments once charges and bonuses are factored in.
Key Differences at a Glance
| Feature | Term Plan | Endowment Plan |
|---|---|---|
| Primary Purpose | Pure financial protection for dependents | Protection combined with savings |
| Premium Cost | Low | Higher |
| Coverage Level | High (15–20x annual income possible) | Lower for the same premium outlay |
| Maturity Benefit | None | Sum assured plus bonuses |
| Flexibility | Cancel anytime within free-look period for full refund (minus nominal fees) | Extended lock-in with surrender charges |
Comparing LIC's New Tech-Term Plan 954 and New Endowment Plan 714: Pure Protection vs Protection with Savings
To understand how this works in practice, let's compare two specific plans.
- LIC's New Tech-Term Plan (954) is a pure term insurance providing high financial protection at affordable premiums. It offers flexibility with level or increasing coverage and is available for easy online purchase. The plan pays a death benefit only, with no maturity amount.
- LIC's New Endowment Plan (714) combines life cover with savings by offering a lump sum maturity benefit along with bonuses. It provides financial security to the family in case of death during the policy term.
Mr. A, a 40-year-old male, opts for LIC's New Tech-Term Plan (954) with a policy term of 20 years. He pays an annual premium of Rs. 15,921 to secure a sum assured of Rs. 1 crore, ensuring pure financial protection for his beneficiaries in case of his untimely death during the policy term. On the other hand, Mr. B, also aged 40, chooses LIC's New Endowment Plan (714) with the same 20-year term but pays a significantly higher annual premium of Rs. 6,35,640. This plan guarantees a sum assured of Rs. 1 crore along with a bonus of Rs. 40,00,000 payable in the event of his death within the term. If Mr. B survives the policy duration, he is entitled to a maturity payout of Rs. 1.9 crore, combining the policy's Basic Sum Assured + Accumulated Simple Reversionary Bonus + Final Additional Bonus (FAB).
| Years | Age | Endowment Plan Premium | Term Plan Premium | Surplus | Investment |
|---|---|---|---|---|---|
| 1 | 40 | 6,35,640 | 15,921 | 6,19,719 | 6,19,719 |
| 2 | 41 | 6,35,640 | 15,921 | 6,19,719 | 13,32,396 |
| 3 | 42 | 6,35,640 | 15,921 | 6,19,719 | 21,51,974 |
| 4 | 43 | 6,35,640 | 15,921 | 6,19,719 | 30,94,489 |
| 5 | 44 | 6,35,640 | 15,921 | 6,19,719 | 41,78,382 |
| 6 | 45 | 6,35,640 | 15,921 | 6,19,719 | 54,24,858 |
| 7 | 46 | 6,35,640 | 15,921 | 6,19,719 | 68,58,306 |
| 8 | 47 | 6,35,640 | 15,921 | 6,19,719 | 85,06,771 |
| 9 | 48 | 6,35,640 | 15,921 | 6,19,719 | 1,04,02,505 |
| 10 | 49 | 6,35,640 | 15,921 | 6,19,719 | 1,25,82,600 |
| 11 | 50 | 6,35,640 | 15,921 | 6,19,719 | 1,50,89,709 |
| 12 | 51 | 6,35,640 | 15,921 | 6,19,719 | 1,79,72,884 |
| 13 | 52 | 6,35,640 | 15,921 | 6,19,719 | 2,12,88,536 |
| 14 | 53 | 6,35,640 | 15,921 | 6,19,719 | 2,51,01,535 |
| 15 | 54 | 6,35,640 | 15,921 | 6,19,719 | 2,94,86,485 |
| 16 | 55 | 6,35,640 | 15,921 | 6,19,719 | 3,45,29,176 |
| 17 | 56 | 6,35,640 | 15,921 | 6,19,719 | 4,03,28,272 |
| 18 | 57 | 6,35,640 | 15,921 | 6,19,719 | 4,69,97,232 |
| 19 | 58 | 6,35,640 | 15,921 | 6,19,719 | 5,46,66,535 |
| 20 | 59 | 6,35,640 | 15,921 | 6,19,719 | 6,34,86,235 |
| Total | 1,27,12,800 | 3,18,420 | 1,23,94,380 | 6,34,86,235 | |
This table compares cash flows for a 20 year period between LIC's New Endowment Plan (714) and LIC's New Tech Term Plan (954) for a 40 year old.
- The "Endowment Plan Premium" column shows the fixed annual outgo of Rs. 6,35,640 from age 40 to 59, adding up to Rs. 1,27,12,800 over 20 years.
- The "Term Plan Premium" column captures the much lower yearly premium of Rs. 15,921 for the same ages and term, with a total outgo of Rs. 3,18,420 across 20 years.
- The "Surplus" column represents the annual difference between the endowment premium and the term premium (Rs. 6,19,719 each year), i.e., the amount saved by choosing the term plan instead of the endowment plan.
- The "Investment" column assumes this surplus is invested regularly (broken into Yearly investments) at an annual return of 15 percent, showing how the invested surplus grows over time.
- By the end of the 20th year, the investment column illustrates a projected corpus of about Rs. 6,34,86,235, highlighting the potential advantage of combining a term plan with disciplined investing of the premium savings, which is significantly higher than the Rs. 1.9 crore maturity value of the endowment policy.
- By the 13th year, the investment column already shows a corpus that exceeds the maturity value of the endowment plan, demonstrating how quickly the invested surplus can overtake traditional policy returns.
Do you believe most people pick endowment plans due to the promise of “getting money back”, or because investing surplus separately feels effort-heavy? Comments are welcome.
Conclusion
Choosing a pure term plan and investing the premium savings can transform simple protection into powerful wealth creation. Over 20 years, the disciplined investment of the surplus builds a corpus that can far exceed traditional Endowment policy returns. This approach delivers a strong safety net for your family while aggressively growing your long term wealth. It also gives you full transparency and control over where and how your money is invested. In short, smart insurance planning plus smart mutual fund investing can turn the same cash outflow into a far more confident financial future.
