Term plan or investment plan? Buy term and invest the rest
₹1 lakh a year buys ₹10 lakh of cover in an endowment plan, or ₹1 crore of term with ₹85,000 left to invest. See what each leaves after 20 years.
6 min read
An agent offers a plan that "gives life cover and returns your money with a bonus". It sounds like the best of both. Usually it's the weaker version of each: too little cover, and returns close to an FD's.
The alternative is to keep the two jobs apart: buy term insurance for cover, and invest the rest.
What's the difference?
- Term insurance pays your family a large sum if you die during the term. If you survive, it pays nothing. That's why it's cheap: a healthy 30-year-old can get ₹1 Cr of cover for around ₹15,000 a year.
- Endowment, money-back and similar plans mix insurance with saving. Most of the premium is invested, usually conservatively, and the cover is often about ten times the yearly premium.
- ULIPs mix insurance with market-linked funds, with charges and a five-year lock-in.
The same ₹1 lakh a year, two ways
Figure 1 from the Insurance calculator
₹1,00,000 a year for 20 years: an endowment plan, or term cover plus investing
How to read it
- 1After 20 years: ₹36.8 L from the plan, ₹37.6 L from term plus PPF, ₹70.8 L from term plus equity funds.
| Option | Life cover | After 20 years |
|---|---|---|
| Endowment plan | ₹10 L | ₹36.8 L |
| Term + PPF | ₹1 Cr | ₹37.6 L |
| Term + equity funds | ₹1 Cr | ₹70.8 L |
Even investing the difference in PPF, as safe as the plan, ends level, with ten times the cover. Equity funds swing more but have grown far more over long periods.
How much term cover do you need?
Enough to replace what your income does for your family until they're independent, plus loans and big goals, less what you've saved. For many families that's 10–15 times yearly income. Is ₹1 crore of term insurance enough? works through it, and the term insurance calculator sizes yours.
Try it with your numbersTerm Insurance CoverEnter your income, expenses, loans and goals. See the cover your family needs and how long your current cover would last.
Already have an endowment plan?
Don't surrender it in a hurry. Early surrender can lose much of what you've paid. Compare three options: keep paying, make it paid-up (stop paying, keep a smaller maturity value), or surrender. Buy term cover first either way, so your family is never left without protection.
What this doesn't mean
- These numbers are illustrations. A 5.5% plan return, a ₹15,000 term premium and 12% from equity are assumptions; actual premiums depend on your age, health and insurer.[1]
- Buying term and investing the rest takes discipline. The plan forces you to save; investing the difference only works if you actually do it.
- No product is recommended. Compare insurers on claim record, not just premium.
Endowment premium paid at the start of each year at 5.5% a year; term premium of ₹15,000 a year; the rest invested monthly at 7.1% (PPF) or 12% (equity). Tax not modelled. For illustration only, not insurance or investment advice.