AKG Money

Endowment policy or term + invest?

“Insurance plus savings, and you get your money back.” Find the yearly return your policy actually pays, and compare it with buying pure term cover and investing the rest of the premium.

These are example numbers. Change any of them to see your own answer.

The policy you have or were offered
₹

= ₹1 L

years

Sum assured plus bonuses, from the benefit illustration. Add up money-back payments too.

₹

= ₹30 L

₹

= ₹10 L

Term plan and investing instead
₹

= ₹1 Cr

Get a quote for your age; for a healthy non-smoker in their 30s, ₹1 crore often costs ₹10,000–20,000 a year.

₹

A balanced mix; equity index funds have returned more over long periods, PPF pays 7.1% tax-free.

%
3.7% a year

You pay ₹20 L over 20 years and get ₹30 L back: a return of 3.7% a year. Buying ₹1 Cr of term cover and investing the other ₹88,000 a year would grow to ₹55.44 L, ₹25.44 L more, with 10× the cover.

Over 20 years
ItemThe policyTerm plan + investBetter
You pay each year₹1,00,000₹1,00,000
Of which, insuranceMixed in₹12,000
Of which, investedMixed in₹88,000
Life cover₹10 L₹1 Cr
You get at the end₹30 L₹55.44 L
Yearly return on your money3.7%10%

Already paying into a policy? Surrendering early often loses money. Compare the surrender value with what the remaining premiums would earn invested, or make it paid-up, before deciding. Policy payouts can be tax-free; check the rules for your premium size.

Policy's real return3.7% a year

How this is worked out

  1. Policy return: premiums paid at the start of each year, the maturity amount received at the end; the yearly return (IRR) that links them.
  2. The alternative: pay for a term plan, and invest the rest of the same premium at the start of each year at the return you set.
  3. Both spend exactly the same each year, so the comparison is fair. The table also shows how much life cover each gives.

Questions people ask

Why do endowment policies return so little?

Part of each premium pays for life cover, part for commissions and costs, and the rest is invested conservatively. Typical returns work out to 4–6% a year, often below inflation.

Where do I find the maturity amount?

In the benefit illustration you signed, usually shown at two assumed rates (4% and 8%). Use the lower one to be safe. For money-back policies, add up all the payouts.

Should I surrender my existing policy?

Not automatically. Early surrender values are low. Compare what you'd get now with what the remaining premiums would earn invested, or make the policy paid-up to stop premiums without losing what's built up.

Isn't a guaranteed return safer?

Guaranteed doesn't mean good: a guaranteed 4% loses to 6% inflation. If you want safety, PPF pays 7.1% tax-free with a government guarantee, and term cover is cheap on its own.

Is my data saved anywhere?

No. Everything is worked out in your browser. Your numbers stay on your own device, and the page link holds them so you can share them.

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