Introduction: The ₹50 Lakh Mistake
Ravi, age 30, bought a LIC endowment policy in 2005. Premium: ₹5,000/month for 20 years. Total invested: ₹12 lakhs. In 2025, he got maturity amount: ₹32 lakhs.
He was happy until his friend showed him the math: If he had bought ₹1,000/month term insurance + invested ₹4,000/month in SIP instead, he would have ₹80+ lakhs today!
Same ₹5,000 monthly. But endowment gave ₹32L. Term + SIP gave ₹80L. Ravi lost ₹48 lakhs because he mixed insurance with investment.
Here's the uncomfortable truth: Life insurance companies sell "investment" policies because they profit. You lose. LIC endowment returns: 5-6% annually. Mutual fund SIP returns: 12% annually. The difference over 20 years? Millions of rupees.
This guide reveals the complete truth about life insurance as investment, real return comparisons, types of policies (Term, Endowment, ULIP), the proven "Buy Term + Invest Difference" strategy, and calculations that will shock you.
3 Types of Life Insurance in India
Type 1: Term Insurance (Pure Protection, BEST)
- Pure life cover: If you die, family gets money. If you survive, no maturity benefit.
- Premium: Very low (₹500-₹2,000/month for ₹1 crore cover!)
- Purpose: Protect family financially if you die early
- Investment component: ZERO (this is good!)
- Best for: Everyone who has financial dependents
Type 2: Endowment Plans (Insurance + Savings, POOR RETURNS)
- Dual benefit: Life cover + guaranteed maturity amount
- Premium: HIGH (₹5,000-₹20,000/month for modest cover)
- Returns: 5-6% annually (VERY LOW!)
- Lock-in: 15-25 years (surrender = huge loss)
- Why people buy: "Guaranteed returns" sounds safe
- Reality: Inflation destroys these "guaranteed" returns!
Type 3: ULIPs (Unit Linked Insurance Plans, MIXED BAG)
Combination: Life cover + market-linked investment
Premium: Medium to High
Returns: 8-10% (better than endowment, worse than direct mutual funds)
Fees: High charges eat into returns
Lock-in: 5 years minimum
Verdict: Better than endowment, but still inferior to Term + SIP
The Shocking Comparison: Term vs Endowment vs ULIP vs SIP
| Feature | Term Insurance | Endowment Plan | ULIP | Mutual Fund SIP |
|---|---|---|---|---|
| Primary Purpose | Pure protection | Protection + Savings | Protection + Investment | Pure investment |
| Life Cover | ₹1 crore for ₹1K/month | ₹10-20L for ₹5K/month | ₹25-50L for ₹5K/month | None |
| Maturity Benefit | ₹0 (some plans return premium) | Yes (guaranteed) | Yes (market-linked) | Yes (market-linked) |
| Annual Returns | N/A | 5-6% | 8-10% | 12% (equity funds) |
| Charges/Fees | Very low | Hidden in premium | High (fund management + mortality) | Low (1-2% expense ratio) |
| Flexibility | High | Very low (locked 20 years) | Medium (5-year lock-in) | Very high (redeem anytime) |
| Verdict | ✅ BEST for protection | ❌ WORST investment | ⚠️ Average | ✅ BEST for wealth |
Real Money Comparison: LIC Endowment vs Term + SIP
Scenario: ₹5,000/month for 20 Years
Premium: ₹5,000/month × 240 months = ₹12,00,000 invested
Life cover: ₹15 lakhs
Returns: 5.5% annually
Maturity amount (after 20 years): ₹32 lakhs
Your contribution: ₹12L
Returns: ₹20L (gain)
Total: ₹32L
Step 1: Buy Term Insurance
Life cover: ₹1 crore (vs ₹15L in endowment!)
Premium: ₹1,000/month × 240 months = ₹2.4 lakhs
Step 2: Invest Remaining in SIP
SIP: ₹4,000/month × 240 months = ₹9.6 lakhs invested
Returns: 12% annually (index fund average)
Maturity amount (after 20 years): ₹ 48 lakhs
Total investment: ₹2.4L (term) + ₹9.6L (SIP) = ₹12L
SIP corpus: ₹48L
Total wealth: ₹48L
COMPARISON:
Endowment: ₹32L + ₹15L life cover
Term + SIP: ₹48L + ₹1Cr life cover
YOU GAIN: ₹16 LAKHS MORE + 6.6× BETTER LIFE COVER!
Real Stories: When People Learned The Hard Way
Story 1: Rajesh - The ₹40 Lakh Realization
Premium: ₹10,000/month for 20 years
Total invested: ₹24 lakhs
Maturity amount: ₹64 lakhs
He was happy—doubled his money!
If he had done Term (₹2K) + SIP (₹8K):
• Term insurance: ₹1 crore life cover for ₹2K/month
• SIP investment: ₹8K × 240 months = ₹19.2L invested
• SIP @ 12% for 20 years: ₹96 lakhs!
His endowment: ₹64L
If he had done Term + SIP: ₹96L
He lost ₹32 lakhs by choosing "safe" endowment!
Story 2: Priya - The Smart Choice
She researched online, learned about Term + SIP
✓ Bought ₹50L term insurance: ₹800/month
✓ Started ₹4,200/month SIP in Nifty 50 index fund
✓ Total: ₹5,000/month (same as what LIC agent quoted!)
Term insurance: Still ₹50L protection
SIP investment: ₹4,200 × 120 = ₹5.04L invested
SIP corpus @ 12%: ₹9.6 lakhs!
Her LIC-buying friends (same ₹5K premium):
Got ₹7 lakhs maturity (5.5% returns)
Priya has ₹9.6L vs friends' ₹7L. She's ahead by ₹2.6L in just 10 years!
Why Endowment Plans FAIL as Investments
Reason #1: Returns Don't Beat Inflation
Endowment returns: 5-6% annually
Inflation in India: 6-7% annually
Real returns: -1% to 0% (YOU LOSE MONEY!)
Example: ₹1L today = ₹1.06L next year (endowment 6% return)
But ₹1L purchasing power next year needs ₹1.07L (7% inflation)
You're actually POORER despite "guaranteed returns"!
Reason #2: High Charges Eat Returns
Insurance companies charge: Mortality charges + Admin fees + Fund management + Surrender charges. These fees eat 30-40% of your premium!
Reason #3: Locked For 20+ Years
Surrender early (before 10-15 years)? You get back LESS than what you paid! Mutual funds? Redeem anytime with no penalty.
Reason #4: Low Life Cover
₹5,000/month endowment gives ₹15-20L cover. Same ₹1,000/month term gives ₹1 CRORE! Your family gets 50× less protection in endowment.
The Proven Strategy: Buy Term + Invest Difference
- Step 1: Calculate how much you can invest monthly (say ₹10,000)
- Step 2: Buy high life cover term insurance (₹1-2 crore for ₹2,000/month)
- Step 3: Invest remaining amount in equity mutual fund SIP (₹8,000/month)
- Step 4: Continue for 20-30 years
- Result: High protection + high wealth (BOTH!)
Step-by-Step Implementation
- Week 1: Calculate life cover needed (10-15× annual income)
- Week 2: Compare term insurance online (PolicyBazaar, BankBazaar)
- Week 3: Buy term insurance (₹1-2 crore cover)
- Week 4: Open demat account + start SIP in index fund
- Ongoing: Continue SIP for 20+ years, ignore market volatility
Common Mistakes People Make
Mistake #1: "I'll Get Money Back, So Endowment Is Better"
Yes, you get money back. But LESS than if you invested separately! The "getting money back" is YOUR OWN money with poor returns.
Mistake #2: "Mutual Funds Are Risky, LIC Is Safe"
True, mutual funds fluctuate. But over 20 years, they ALWAYS beat FDs/endowment. Short-term volatility = long-term wealth. LIC's "safety" = guaranteed poverty.
Mistake #3: "My Agent Says This Is Best"
Agents earn 20-40% commission on first-year premium of endowment/ULIP. They earn ZERO on term insurance. They recommend what benefits THEM, not you!
Mistake #4: "I'll Buy When I'm 40-45"
Term insurance premium doubles every 10 years! Buy at 25: ₹800/month. Buy at 35: ₹1,600/month. Buy at 45: ₹3,500/month. Delay = expensive!
Bottom Line:
Life insurance is for PROTECTION. Investments are for WEALTH. Never mix them.
The Numbers Don't Lie:
- Endowment returns: 5-6% (loses to inflation)
- ULIP returns: 8-10% (better, but high fees)
- Mutual fund SIP: 12% (proven over 20 years)
- Term + SIP strategy: Best protection + best returns
What You Should Do:
- ✅ If you have endowment/ULIP: Continue (surrender = loss), but don't buy new ones
- ✅ If you don't have term insurance: Buy NOW (₹1-2 crore cover)
- ✅ Invest surplus in mutual fund SIPs (index funds safest)
- ✅ Ignore insurance agents pushing "investment" policies
- ✅ Educate family members (save them from same mistake)
The Final Math:
₹10,000/month for 20 years:
• Endowment plan: ₹64 lakhs + ₹20L life cover
• Term + SIP: ₹96 lakhs + ₹2 crore life cover
Difference: ₹32 lakhs LOST if you choose endowment!
🛡️ Buy Term Insurance. Invest in Mutual Funds. Keep Them Separate. Build Real Wealth!