You Think You’re Insured. You’re Probably Not.

Ask most families whether they’re insured, and the answer comes back instantly. Yes. There’s an LIC policy. Maybe two.

Then ask the follow-up question nobody asks: if something happened to you next month, how much would your family actually receive?

Often the answer is ₹10 lakh. Maybe ₹15 lakh. Sometimes the person doesn’t know.

That gap, between having insurance and having enough insurance, is the real story of the endowment plan.

What an endowment plan really is

An endowment plan is two promises stapled together. One is life cover. The other is a savings plan that pays a lump sum at maturity, with bonuses added along the way.

It feels safe. Premiums go in, a guaranteed-looking sum comes out, and if you die in between, your family gets paid. Nobody loses.

But look at how the two halves are sized. For the maturity benefit to stay tax-free, the cover generally needs to be at least ten times the annual premium. That is a legal floor, and in practice it’s where many policies sit. A ₹1 lakh annual premium buys roughly ₹10 lakh of cover. For a 35-year-old with a spouse, children, a home loan and parents, ₹10 lakh is a few months of expenses, not protection.

The same ₹1 lakh, two ways

Take a ₹1 lakh annual premium for 20 years. You will have paid in ₹20 lakh.

Path 1: an endowment plan. Independent estimates put the realised return on traditional endowment plans at roughly 4–6% a year over the full term, once you look past the bonus illustrations. At 4–6%, ₹1 lakh a year grows to about ₹30–37 lakh. The cover over those 20 years is around ₹10 lakh.

Path 2: term insurance plus separate investing. A pure term plan for ₹1 crore of cover, for a healthy 35-year-old non-smoker, typically costs somewhere in the range of ₹10,000–₹20,000 a year, depending on the insurer, your health, and the term. Put the remaining ~₹85,000 into investments built for investing. At an illustrative 7%, that grows to about ₹35 lakh. At an illustrative 10%, about ₹49 lakh. Neither number is a promise. The cover over those 20 years is ₹1 crore.

Look at what changed. The maturity amounts are in the same neighbourhood. The cover is ten times higher.

Nobody gave up anything to get there. The money was simply split into two jobs.

Figures are illustrative, not quotes or return promises. Growth is calculated on year-end contributions. Actual term premiums, endowment returns and surrender values vary by insurer, age, health and policy terms. This is educational, not personalised advice.

The part the brochure doesn’t lead with

Endowment plans are long contracts, and they punish people who leave early.

If you stop paying or surrender in the early years, the guaranteed surrender value has historically been as low as about 30% of the premiums you paid. Lapse the policy entirely and the picture can be worse. Life changes over 20 years: a job loss, a move abroad, a medical bill. A product that penalises you for life happening isn’t a safe product. It’s a rigid one.

Why they sell so well anyway

Because the pitch lands emotionally. “Your money comes back.” “It’s insurance and savings.” “If nothing happens, you still get something.”

That last line is the heart of it. Term insurance feels like paying for something you hope never to use. An endowment feels like you’re never paying for nothing.

But think about what that comfort costs. You aren’t getting free cover plus free returns. You’re paying for cover that’s too small and a return that’s modest, to avoid the discomfort of buying protection that, ideally, never pays out. And endowment plans tend to carry higher built-in commissions than term plans, which is part of why they’re pushed so hard.

There’s also a small tailwind now: GST on individual term insurance premiums was removed with effect from 22 September 2025.

“But what if the claim gets rejected?”

A fair worry. Industry-wide, life insurers settle the large majority of death claims (the figures are in the high 90s, as a percentage), and rejections most often trace back to the policy having lapsed or to non-disclosure of health, habits or income at the time of buying.

That points to the real lesson: with any life policy, disclose everything accurately, keep it in force, and make sure your nominee knows it exists.

What to check this week

Pull out every life policy you hold and write down two numbers for each: the annual premium, and the sum assured (the amount your family receives if you die).

Add up the sum assured across all of them. Then compare that total to a rough measure of what your family would need: outstanding loans, plus several years of household expenses, plus goals like children’s education.

If the total falls short, you’ve found a protection gap, and it’s a separate problem from the investment question.

One caution before anyone acts: if you already hold an endowment plan, don’t rush to surrender it. Early surrender can crystallise a loss. The right move depends on how far into the term you are and the policy’s paid-up and surrender values. That’s a decision worth working through with the actual numbers.

You’re not wrong to have bought one. You were buying the feeling of safety, and the product was designed to sell exactly that. The goal now is to make sure the safety is real.