Endowment Plans, ULIPs and Term Insurance

Indian life insurance has traditionally been sold as a savings product. Understanding the options can save families a lot of money.

Term insurance

• Pays a lump sum only if the insured person dies during the term.
• No maturity benefit if they survive.
• Very cheap for large cover: a young, healthy person can get cover of 1 crore rupees for perhaps several hundred to a couple of thousand rupees a month, depending on age and health.

Endowment and money-back plans

• Combine insurance and savings.
• Pay a maturity amount if the person survives.
• Low returns, often similar to or below safe deposits after costs.
• Small cover for high premiums.
• Surrender penalties if stopped early.

ULIPs

Unit-linked insurance plans combine insurance with market investments. Charges were high in the past, leading to reforms in 2010. They have lock-in periods.

Buy term and invest the rest

Many financial experts suggest:

1. Buy term insurance for adequate protection.
2. Invest the savings in PPF, mutual funds or other options.

This usually gives both more cover and better returns.

Why endowment plans remain popular

• Agents earn higher commissions on them.
• Families like getting “money back”.
• Tax benefits under the old regime.
• Trust in insurers like LIC.

Tip

If you already hold an endowment policy, consider costs before surrendering; sometimes making it paid-up is better.