Why your LIC endowment policy is a bad investment

Almost every Indian household owns one: an LIC endowment, a money-back plan, or a ULIP, sold as a way to "save and get insured at the same time." It feels responsible. The math says otherwise.

The bundling problem

Insurance and investing are two different jobs. Insurance should replace your income if you die; investing should grow your money. Bundled products — endowment, money-back, ULIP, and 'guaranteed' plans — try to do both and end up doing each badly: too little cover to actually protect your family, and returns that typically land at 4–6%, often below inflation after costs.

A ₹50 lakh endowment sounds like a lot of cover until you realise a family that loses its earner needs 10–15× annual income — often ₹2–3 crore. The 'savings' came at the cost of being dangerously underinsured.

The alternative: separate the jobs

The fee-only planner's standard answer is to buy the two things separately:

• Term insurance for protection — pure cover, no investment. ₹1–2 crore of term cover costs a fraction of one endowment premium, because you're not paying for a savings component.
• Index or mutual funds for growth — the same premium money, invested as a SIP, has historically compounded far ahead of 4–6% over long horizons.

Term + SIP, with the same monthly outflow, usually leaves you both better insured and better invested than the bundled policy — often decisively so over 15+ years.

Before you surrender anything

Don't cancel blindly. Compare the policy's current surrender value against its projected maturity value — if you're deep into the term, the remaining years sometimes pay off better than exiting. And make the term cover live *before* you drop anything. But for a policy you bought recently, or one with years of premiums still to run, the switch is usually worth a hard look.

Educational planning, not investment or insurance advice. CowrieOS earns no commission on any product — which is exactly why it can say this.