Term insurance vs endowment: a 1000-rupee question disguised as a 1-lakh one

A salaried 32-year-old, non-smoker, in good health, can typically buy a ₹1 crore pure term life cover for somewhere around ₹12,000 – ₹15,000 a year. That is roughly the cost of a smartphone, once a year, for the next 30+ years.

The same person, walking into a typical insurance conversation, is far more likely to come out with a “₹15,000 a month savings cum protection plan with guaranteed returns” sized at ₹10 lakh of cover. That is a different financial product. And it usually serves the buyer worse on both counts.

Why term plans look “wasted”

Pure term insurance pays only if the insured dies during the policy term. If you live through it — which is what we are all hoping for — the premium is “gone”. This feels viscerally bad. Most people who have never bought any insurance look at this and say “I’m not getting anything back?”

The mental flip required is to see the premium as the cost of not being a financial catastrophe for your dependants. Like the premium on your car insurance. You hope it stays wasted.

What endowment / ULIPs / money-back actually deliver

These products bundle insurance + investment. The split varies, but the consequences are predictable:

• The insurance cover you get for the same premium is 10x smaller (sometimes more).
• The investment return is typically 4-6% IRR over the long run — beating an FD only after 15-20 years, and losing decisively to a diversified equity SIP.
• Liquidity is poor — surrender values are punishing in the early years.

You pay more, you are under-insured, your money grows slower.

”But endowment is guaranteed and safe”

The “guarantee” is the company’s promise to pay, not a regulator’s. The “safety” is mostly the absence of NAV-style daily price ticks. The underlying assets are largely the same fixed-income instruments you can hold yourself, more cheaply, through a debt fund or PPF.

Real safety in your portfolio comes from term + health insurance covering catastrophes, plus an emergency fund covering shocks. Endowment plans cover neither well.

What to do instead

The classical split:

1. Term insurance — sized at 10-20x annual income plus outstanding loans, sufficient to replace your income until dependants no longer need it.
2. Health insurance — family floater with realistic sum insured, ideally beyond just employer cover.
3. Investments — mutual fund SIPs aligned to goals, PPF / NPS for tax-advantaged retirement money.

You will pay less, get better cover, and end up wealthier.

If you already own endowment / ULIP policies

Don’t reflexively surrender. The right move depends on how many premium-paying years are left, the surrender value, and the alternatives. We will cover that decision tree in a separate post.

The plan that fits in one sentence

Buy term and health for protection. Buy mutual funds for wealth. Stop mixing the two.