Why you should never go for Traditional Endowment Life Insurance plans? Term insurance is the Best option!

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There may be several reasons why you have opted for traditional endowment insurance schemes, you may have pressure from your relative/neighbor or friend who wants you to buy a plan so that he gets his commission, but at least from now on do not fall prey to those hacks! You can show them this article to shut them!

Major drawbacks of traditional or Endowment insurance schemes

  • Very expensive premiums for less sum assured this amount may not be sufficient for your dependents
  • No clarity on your investment growth over a period, as your period is long like 10 yrs, 20 yrs, you will not be having any clarity.
  • Early exit charges are very high, has highest lock-in period, mostly complete period of insurance,
  • Investment returns are very low, this also varies from time to time. They have a fancy word called “Bonus”. You don’t really know how much amount is this. Usual returns are around 5% annualized.
  • In a process, you won’t get the best coverage of insurance amount which your dependents require in case of any unfortunate event, and also you won’t get high returns on your investment.

Many of my friends have also opted for these traditional insurance plans and still, some of them think that they are getting insurance and investment at the same time, but in reality, you are not getting either of the both sufficiently as you require.

What is the Best way to get insurance and investment?

We must consider insurance and investments separately so that we get maximum advantage in both of them.

You may read What is NPS? Should you invest in NPS to get additional tax benefit?

How to choose Insurance:

Consider insurance as an essential tool, this will allow your dependents to live life after you, this amount should take care of your loved ones. All your family dreams should not get sacrificed in case if you are not around.

  • Have an estimate of income requirement for all your family future needs including your children education
  • Estimate number of years you require insurance, till when you will have your financial dependents.
  • You must ensure at least your children education must have completed, Your insurance must be valid at least your youngest kid joins his job/earns money.
  • Maybe you should have insurance till the time your youngest kid nearing 28 to 30 yrs of age so that they can take care of their life’s after that period.
  • Simply enrolling into 20-year policy of endowment plan is not correct, while your kids will still be studying during that period and your policy gets expired, and most difficult part is you won’t get new insurance at that time as your age goes up and insurance premiums will be very high.
  • Best alternate: Online Term Insurance plan
    1. Term insurance plan is simple plain insurance, where in case of unfortunate death of a policyholder, the nominee will get mentioned sum assured, there is no maturity amount paid in this plan. The premiums collected is only to cover the risk, no money will be given back during maturity.
    2. As per latest IRDA announcements, any policy which is more than 3 years, the insurance company cannot reject a claim citing any reason.

    3. Due to above IRDA guidelines, this makes more sense to take term insurance and due to this reason, claim settlement ratio is very high in these policies.
    4. Taking a term insurance plan with pure insurance cover is a wise choice, you will get high sum assured amount with less premium.
  • If you take Term insurance plans early, Premiums will be very less and you need to pay the same amount till your policy expires, say 30 to 40years as you may opt for based on your need.
  • If you are a non-tobacco user, you can enjoy a rebate on all premiums for the complete period.

How to choose Investment options?

  • If you are afraid of markets and if you are scared of market volatility or if you are in the learning stage, and if you do not wish to take any risk you can simply go for Bank FDs, PPF, Sukanya Samriddhi account for girl child etc. together with a Term insurance plan.
  • If you wish to go with Equity stocks, Equity Mutual funds investments, please read these basic rules to take maximum advantage of volatility and get higher returns in the long run.
  • That’s it very simple! either safe PPF/FDs etc. with fewer returns or Equity Mutual funds with little risk but high returns based on your ability.

[emaillocker][/emaillocker] A simple comparison of 3 options for a 30-year-old is listed below with maturity values of all 3 options.




Conclusion summary:

Product Benefits
Traditional insurance plan:Just Rs.20Lakh insurance coverage, and returns of just 20Lakh max. incl bonus which is not clear, at the mercy of insurance company declaration.
Term insurance with no risk PPF/FDs/Debt Mutual FundsCovers you with for Rs. 1 Cr insurance which is 5 time more, and you get assured returns more than double of normal plan in safe FDs/PPF /SSY accounts/Debt Mutual funds.
Term insurance with equity Mutual fundsCovers you with for 1 Cr insurance and you get whooping amount with little risk, which is not a risk in long run.


Hope you understood the clear difference now.

What to do, if you have already taken the traditional Endowment policy? There is a way!

  • These traditional policies will have a minimum 15day lookout period, if you have taken recently before 15days, give back your policy and get a full refund and choose either option 2 or Option 3 based on your risk profile.
  • In case if your policy is between 0 to 3 years, you don’t get any refund of your investments, in that case my suggestion is to forgo premiums paid and select alternate option above, however many individuals find it difficult to lose premiums, in such cases you may pay for 3 years and then stop.
  • If your policy is more than 3 years, you can stop your future premiums and select alternate, premiums paid will be returned to you together with a bonus if any after maturity/unforeseen event.

You may also like to read How to earn high from your Idle cash/Bank Balance

How to choose the Best Online Term insurance plan?

As mentioned above, as per regulatory guidelines, a term insurance claim cannot be rejected by insurance companies due to any reason, so it makes sense to take any comfortable insurance company with less premium, you may go for high settlement ratio company to avoid any issues in future.

Best plans are as under considering their reputation in the market and low premiums:

  • Max life online term insurance policy
  • HDFC click 2 protect term insurance
  • LIC e Term insurance Plan
  • ICICI I Protect smart Term Insurance Plan


Taking Term insurance policy should be your first step in doing financial planning in your life, If not done earlier, Get it right away!. You can think of closing your other insurances later. Also investing in ELSS mutual funds makes more sense than any other option to save tax under 80C. this should be the second step.


Hope this helps in your Decision-making process. Please comment /email me if you require any help in this regard.


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  1. Eye Opener! Good post in deed.

  2. Really great things..eye opener ….

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