Term vs Endowment Insurance — The Math (Why Mixing Costs You Lakhs)

Every Indian uncle has at least one endowment policy. Most don't realize how much it costs them. Here's the unsentimental math.

What endowment plans actually pay

An endowment policy bundles insurance with savings. Promise: pay ₹X premium for 20 years, get ₹Y lump-sum at maturity (or to nominee on death). Sounds attractive — until you compute the IRR.

Typical Indian endowment IRR (internal rate of return): 4.5–5.5% over 20 years. Compare that to:

• PPF: 7.1% guaranteed
• EPF: 8.15% (FY 24-25 declared rate)
• Equity MF: ~12% long-term average

The insurance company isn't being dishonest — it's just charging hefty mortality costs, sales commissions (35–40% of first-year premium!), and overhead.

The "term + MF" alternative

Split the bundle:

• Term plan for the insurance — pure protection, ~₹15,000/yr for ₹1 Cr cover at age 32.
• Mutual fund SIP for the wealth building — better tax efficiency, full liquidity, market-linked return.

A real comparison

Rahul, 32, considers two options for ₹1 Cr cover:

Net difference: ₹1.8 Cr over 28 years for the same insurance cover.

"But endowment forces me to save"

Real concern. The fix: set up an automatic SIP on your salary date. Treat it like the EMI — non-negotiable. Discipline isn't the policy's job.

I already have an endowment — what do I do?

Three options:

1. Continue — if you're <3 years in, surrendering loses too much. Stop further premiums (paid-up status).
2. Surrender — if you've paid 5+ years and the surrender value is reasonable, take the hit and redirect.
3. Convert to paid-up — keep what you've paid, but stop new contributions.

The decision involves IRR on remaining premiums, surrender penalty, and what you'd do with freed-up cash. Our term-cover calculator tells you the right pure-cover amount. The endowment-vs-surrender decision needs a personalised view — we do these reviews free.