Planning for your future is a big step, and in today’s world of uncertainties in India, families always explore safe and assured avenues to secure their family life. Be it buying a house, educating a child, or just enjoying a happy retirement, your options for financial planning always boil down to two avenues: an endowment plan and traditional savings schemes. While there is a lot of similarity, as both help you save money, the differences are stark too. Choosing the better option between an endowment plan vs. a savings scheme depends on your requirements for the money you want to save. Here, we bring you all the differences and similarities in simple language so that you can make a choice based on your budget and planning requirements.
Understanding the basics
Before jumping to the comparisons, it is crucial to understand the basic working of each instrument. Here, we first discuss some features that define the endowment plan and savings schemes.
What is an endowment plan?
An endowment plan is essentially a type of savings-cum-insurance that is run by private or public limited life insurance companies. When you start paying your premium for the endowment plan, the payment is bifurcated into two parts:
- Life cover: A part of your premium payment every year is allocated towards providing you life cover.
- Savings: The other is saved with a view to give you a maturity benefit upon completion of the policy term. Depending on the kind of endowment plan and the performance of the insurance company, you might earn guaranteed additions or even reversionary additions upon survival.
What are saving schemes?
A wide variety of saving schemes are run by banks, post offices, and even the government for the citizens. These include schemes like Sukanya Samriddhi, Public Provident Fund (PPF), National Savings Certificate (NSC), and Term Deposit (FD) schemes run by the banks. Unlike endowment plans, savings schemes do not provide any life insurance cover. Every Rupee that you deposit is saved with a view to earning interest on the amount deposited based on pre-decided terms.
Key factors to consider before choosing
Now, we move towards understanding the key factors that need to be considered before making a choice between an endowment plan and saving schemes. The following aspects should ideally be reviewed ahead of making a choice between the two:
Aspect 1: Life protection vs. building of a corpus
An endowment plan provides an avenue for life insurance for your family members. In other words, in case of an unfortunate event such as death during the term of the policy, the entire or a pre-decided sum assured is provided to your nominee or family to meet their needs. On the other hand, traditional savings schemes do not offer any rider of life insurance. In other words, upon the death of the policyholder during the lock-in period, the nominee will receive the amount of the corpus built up till then as of the interest accrued on it.
Aspect 2: Lock-in period and flexibility
Most saving schemes provide a lock-in period, which could be short or long. For instance, fixed deposits allow you to open the deposit for a short period, while schemes running from the government through the post office provide flexibility to withdraw the money in emergency after a certain number of years. Endowment plans require a long-term commitment on your end and entail a penalty for premature withdrawal. Consequently, an endowment plan should be considered only if you can make a long-term commitment to pay the premiums regularly.
Aspect 3: Tax benefits under new tax rules
The tax rules governing the benefits from endowment plan and saving schemes have changed significantly in the latest budget 2025. Here are a few key considerations relating to the tax benefits:
- Life insurance plan / Endowment plan: Under the new tax rules, the premium paid towards the endowment policy could be claimed as deduction from the gross total income, provided you are following the old tax regime. The tax deduction for the endowment plan is governed by Section 123 (read with Schedule XV) of the Income Tax Act, 2025. However, please note that the benefits from the endowment plan, upon maturity or claim, are governed by the Schedule II, Clause 2 (Schedule II (2)) of the Income Tax Act, 2025. In other words, the entire maturity benefit or the sum assured upon the death of the policyholder is exempt from income tax if the yearly premium does not exceed 10% of the sum assured. It must be noted that the exemptions on the death benefit from the endowment plan are only available when the death of the policyholder is claimed before the maturity of the policy.
- Saving schemes: Most saving schemes enjoy exemptions under the tax rules. The most common amongst saving schemes that provide tax benefits are PPF, Sukanya Samriddhi, etc. For your information, under the old tax regime, the amount invested in these schemes provides you with a tax deduction under Section 123 of the Income Tax Act, 2025. However, the interest earned upon a taxable bank deposit scheme is clubbed with your income and is taxed accordingly. It must be noted that the latest changes in the tax rules are still in their nascent stages, and it is always advisable to consult a tax expert to understand the benefits in your specific case.
Putting it all together: Options and your Indian lifestyle
Every individual’s or the family’s lifestyle differs, and so do their requirements of financial planning. Following are some options based on your financial planning requirements:
Scenario A: You want assured college fees for your child upon attaining majority.
In this case, an endowment plan could help you secure a lump sum amount to fund your child’s education. Upon your survival till your child turns 18 (read as the maturity of the policy), you could utilize the lump sum to fund the college fees. In case of unforeseen circumstances during the active period of your policy, the life cover under the endowment plan would support your family to pay off the education fees.
Scenario B: You want to plan for emergency home repair or medical needs with a corpus that you can access in two to three years.
In this case, an endowment plan is not suitable because of its surrender conditions; hence, a liquid bank deposit saving scheme or a short-term post office deposit scheme would help you build the required corpus within the desired time frame.
Scenario C: You are planning towards retirement needs
In this case, a combination of both government-approved saving schemes (such as PPF and NSC) and an endowment plan would create a balanced portfolio.
How to make the choice?
Your choice of financial planning instruments would majorly be based on the following considerations:
- Life insurance needs: If you do not have sufficient coverage or want to cover your family, it is always advised to buy a combination of life insurance and a saving scheme through an endowment plan.
- Budget analysis: You need to be careful with your budget and make sure that you can pay the regular premium installments without damaging the lifestyle of your family.
- Assessment of costs and terms: Always read through the policy documents and make sure that you are able to bear the sum assured, bonus, and other such terms in the long term.
Eligibility criteria, terms and conditions, underwriting norms, riders attached, the amount of premium payable, and bonus declaration policy differ from one life insurance company to the other. These factors are equally relevant for the various bank deposit saving schemes. Therefore, all the benefits for the endowment plan and various deposit saving schemes are subject to the specific terms and conditions as laid out by the respective firms.
With an understanding of the endowment plan and the saving schemes, it becomes easier to make a smart choice regarding your financial planning needs. It is always advisable to invest time to understand your financial needs and choose the best fit option that secures the financial well-being of you and your loved ones!
