Answer Book question
Term insurance solves one problem: your family gets a large sum if you die during the term. Savings or endowment insurance tries to solve two. small cover plus a modest return. and usually does both badly. Buy them for different reasons, not as rivals.
Term insurance solves one problem: your family gets a large sum if you die during the term. Savings or endowment insurance tries to solve two. small cover plus a modest return. and usually does both badly. Buy them for different reasons, not as rivals.
A 32-year-old in Kottayam pays ₹48,000 a year for an endowment policy with ₹10 lakh sum assured, maturing at 20 years. His friend pays ₹12,000 a year for a ₹1 crore term policy and puts the remaining ₹36,000 into a PPF and an index fund. Twenty years later, the first man has around ₹18–20 lakh. The second has roughly ₹1 crore of cover the entire time, plus investments that, at conservative returns, are worth more than the endowment payout.
A term policy is pure protection. Pay a small premium; if you die in the term, your nominee receives the sum assured; if you survive, you get nothing back, which is exactly how car insurance works and nobody complains. An endowment or money-back policy bundles protection with a savings component managed by the insurer. The bundling is expensive: part of each premium pays for cover, part is commission and charges, and what is left earns a return typically in the range of 4–6 percent.
On your existing policies: sum assured, annual premium, years paid, years remaining, current surrender value What the same annual premium would buy as term cover today Whether you actually save and invest the difference, or whether the forced discipline of an endowment is the only reason you save at all Tax treatment of the policy maturity under current rules
Endowment policies are often sold to people who do not need insurance at all (children, unmarried adults with no dependants) and are rarely sold to the people who need cover most, because the cover they can afford in an endowment format is too small to matter. The sales incentive is the premium, not your protection.
The "LIC agent who is a family friend" is a real institution in Kerala. Many households hold five or six small endowment policies bought over decades to help a relative meet a target. The total cover across all of them is often under ₹15 lakh while the premiums consume a painful share of income. This is not a reason for guilt; it is a reason to do one honest stock-take.
Combined annual premium on four old policies: ₹62,000. Combined sum assured: ₹14 lakh. A fresh ₹1 crore term policy for the same person might cost around ₹18,000 a year. The remaining ₹44,000 a year invested for 15 years at 10 percent becomes approximately ₹14 lakh. the same as the old total cover, but while also holding seven times the protection.
Do not surrender an old endowment policy on impulse. Surrender values in early years are brutal, and if the policy is close to maturity, running it out is often the better choice. The right move is usually: buy the term cover first, then decide policy by policy whether to continue, make paid-up, or surrender.
Photograph the schedule page of every policy and make one list: sum assured, premium, maturity Get one term quote for the real cover gap Only then evaluate each old policy: continue, paid-up, or surrender
I have four insurance policies. What exactly do I have? Should I cancel my old LIC policy? How much life insurance do I need?
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