Term Insurance vs Endowment (Buy Term, Invest the Rest)

An endowment plan’s quoted maturity against a term plan plus investing the premium you save: the endowment’s real return (IRR), the invested corpus, and the return the investment needs to match.

Last updated 24 Sep 2026

Buy term and invest the rest

CurrencyPremiums + maturity + return → corpus on each path

Endowment plan: yearly premium ($)

Policy term (years)Premiums paid at the start of every year of the term; maturity paid at the end.

Maturity value you were quoted ($)From the benefit illustration. Use the guaranteed figure, or the illustrated one with bonuses — and try both.

Endowment’s life cover (sum assured) ($)

Term plan: yearly premium ($)Your own quote, for the same term.

Term plan’s life cover ($)

Expected return on the money invested (% a year)An assumption, not a promise. Market-linked investments can return less, and can fall.

Your tax rate on this income (%)Your marginal rate on the investment’s returns — 0 if none. The page takes it from each year’s gain as it is credited, which is harsher than tax paid only on sale.

Inflation (% a year)Defaults to your currency’s central-bank target (India 4%, US/UK/Euro/Canada 2%). Actual inflation often runs higher — try 5–6% for a cautious plan. For AED, SAR, PKR, BDT and MYR there is no official target: enter your own estimate.

$4,60,136Example

An endowment at $1,00,000 a year for 20 years, quoted to pay $34,00,000; a term plan at $12,000 a year; the $88,000 difference invested at 7%, no tax

The endowment’s IRR and the invested corpus

Endowment: P × [(1 + r)ⁿ − 1] ÷ r × (1 + r) = M, solved for r. Invest the rest: C = (P − T) × [(1 + g)ⁿ − 1] ÷ g × (1 + g), g = return × (1 − tax)

P, T: the endowment and term premiums, paid at the start of each year
M, n: the quoted maturity value, paid at the end of year n
r: the endowment’s IRR. The left side rises with r, and the root lies between min(x, x^1/n) − 1 and (M ÷ P)^1/n − 1, where x = M ÷ (nP); the page halves that interval 40 times, which pins r to within 0.000001 percentage points. The return needed to match is found the same way with P − T in place of P
g: the return after tax, with tax taken from each year’s gain

Worked example

An endowment at $1,00,000 a year for 20 years, quoted to pay $34,00,000; a term plan at $12,000 a year; the $88,000 difference invested at 7%, no tax
Premiums paid: 20 × 1,00,000 = $20,00,000
Endowment IRR: the rate at which 1,00,000 a year grows to 34,00,000 = 4.82% a year
Invested: 88,000 × [(1.07²⁰ − 1) ÷ 0.07] × 1.07 = $38,60,136
Difference = 38,60,136 − 34,00,000 = $4,60,136
The investment needs 5.92% a year to match the maturity; at 5% it reaches $30,55,294

Invested corpus minus endowment maturity (the example: 1,00,000 a year, 20 years, 34,00,000 quoted, term at 12,000)

Tax is taken from each year’s gain, the harshest convention. The comparison turns on the return: the endowment’s 4.82% IRR is certain only to the extent the maturity is guaranteed.
Return	No tax	20% tax on gains	30% tax on gains
5%	−$3,44,706	−$6,74,710	−$8,24,287
6%	$31,360	−$4,14,194	−$6,12,104
7%	$4,60,136	−$1,24,999	−$3,79,677
8%	$9,49,217	$1,96,142	−$1,24,999
10%	$21,44,220	$9,49,217	$4,60,136

A fair comparison, and what each path really gives you

An endowment (a traditional, non-linked savings plan) bundles two things: life cover, and a savings account run by the insurer that pays a maturity value at the end. “Buy term and invest the rest” unbundles them: a term plan gives cover only, for a much smaller premium, and you invest the difference yourself. The fair test is to put the same money into each path every year and see what each has at the end, which is what this page does. Premiums are paid at the start of each year, and the maturity arrives at the end of the term.

The endowment’s IRR — the steady yearly return that turns its premiums into the quoted maturity — is the single number that makes the plan comparable with anything else. In the example it is 4.82% a year. The invested difference grows to $38,60,136 at 7%, $4,60,136 more. It needs 5.92% a year to match; the table shows how tax and the return change the answer. The chart grows the endowment’s premiums at its own IRR so the two paths can be drawn side by side; that line is not a surrender value, which is lower in the early years.

What the numbers leave out. The two paths are not equal in risk. An endowment’s guaranteed benefits are guaranteed by the insurer; bonuses on a participating plan are not, and the benefit illustration shows them at assumed returns, so enter the guaranteed maturity as well as the illustrated one. The investment path carries market risk — its return is an assumption, and it depends on you actually investing the difference, every year, and not spending it. Leaving an endowment early usually returns much less than the premiums paid; IRDAI’s 2024 rules on surrender values for non-linked plans raised the floor but did not remove the cost. Cover differs too: compare the term cover and the sum assured as you enter them, and remember that if the policyholder dies during the term, the term path pays the cover plus the investments built so far. Tax on the maturity, on the investment’s gains and on premiums depends on the policy, the year it was issued and your country’s rules; enter the figures after tax if you know them.

To size the cover your family needs, use the term insurance calculator; to see how a monthly investment grows, the SIP calculator; and to find the return any past investment actually earned, the CAGR calculator. This is arithmetic on the figures you enter, not financial advice.

Frequently asked questions

Is term insurance plus investing better than an endowment plan?

It depends on the return the investment earns, tax, and whether you invest the difference every year. In the example the endowment’s IRR is 4.82% and the investment needs 5.92% to match; the endowment’s guaranteed part carries no market risk.

How do I find the return on an endowment policy?

Work out its IRR: the yearly rate at which the premiums, paid at the start of each year, grow to the maturity value. This page finds it from the premium, term and quoted maturity.

Is the maturity value in the illustration guaranteed?

Only the guaranteed part. On a participating plan, bonuses depend on the insurer’s results and are illustrated at assumed rates. Try the page with the guaranteed maturity as well.

What if I surrender the endowment early?

You usually get back less than you paid in the early years. IRDAI’s rules set minimum surrender values, but the policy’s own surrender value table is what applies.

Related calculators

References

Insurance Regulatory and Development Authority of India. IRDAI (Insurance Products) Regulations, 2024, and Master Circular on Life Insurance Products, IRDAI/ACTL/MSTCIR/MISC/89/6/2024, 12 June 2024: product categories including non-linked (traditional) savings products, benefit illustrations, and special surrender values for non-linked products from 1 October 2024.
Brealey RA, Myers SC, Allen F. Principles of Corporate Finance. McGraw-Hill. Future value of an annuity due; the internal rate of return as the rate that equates the value of payments and receipts.
Bodie Z, Kane A, Marcus AJ. Investments. McGraw-Hill. Risk and return: an expected return is not a guaranteed one, and the spread of possible outcomes grows with the time held.
Central-bank inflation targets used as default inflation by currency: Reserve Bank of India (4% CPI, flexible inflation targeting framework); U.S. Federal Reserve (2% PCE); European Central Bank (2%); Bank of England (2% CPI); Bank of Canada (2%); Reserve Bank of Australia (2–3%); Bangko Sentral ng Pilipinas (3% ± 1). Actual inflation often runs above target.