Money Basics · Insurance done right

Endowment plans

An endowment plan is a life insurance policy that also pays a lump sum at maturity. It's sold as insurance + savings in one. In reality, it's inadequate at both.

How endowment plans work

You pay a premium every year. The insurer provides life cover + invests a portion. At maturity (typically 20–25 years), you receive the sum assured + bonuses. If you die within the term, nominees receive the sum assured.

> The typical endowment plan offers around 4–5% effective returns on your premium over 20 years. India's inflation is 5–6%. You're barely staying even in real terms.

The numbers that expose the problem

A typical 20-year participating endowment plan:

• Premium: ₹60,000/year for 20 years (total paid: ₹12 lakh)
• Sum assured: ₹10 lakh
• Approximate maturity value: ₹19–20 lakh
• Effective return: ~4–5% CAGR

The same ₹60,000/year invested in a Nifty 50 index fund at 12% CAGR would become ~₹49 lakh. With a separate ₹10,000 term plan, you'd have ₹1 crore life cover too.

₹49 lakhterm + index fund (same ₹60,000 split optimally)

₹19–20 lakhtypical endowment maturity value for same premium

Why people still buy them

• Agents earn 30–35% commission in the first year. Massive incentive to sell
• Presented as 'safe' and 'guaranteed'
• Parents often gift them thinking it's responsible
• Insurance = savings is a deeply embedded mental model that agents exploit

If you already have one

If you already hold one, there are three outcomes worth pricing before deciding anything: the surrender value you would get today, the paid-up value if you stop paying but keep the policy, and what carrying it to the end of the premium-paying term returns. All three numbers are on your own policy document and in the insurer's surrender-value table, and each produces a different effective return.

If you've held for 5+ years: it may be close to paid-up value. Consult a fee-only financial advisor.

Takeaway. Endowment plans deliver ~4–5% returns while consuming premiums that could fund term insurance + equity investments separately. They give inadequate coverage and poor returns simultaneously.