Today, let’s break down a life insurance policy that’s quite popular in the Indian market. I won’t name the plan upfront — instead, we’ll walk through how it works and whether it makes sense to stay invested through a simple conversational dialogue between policy buyer and a financial planner.
Policy Buyer: I’m thinking of buying a life insurance policy that gives me both life cover and guaranteed returns. It sounds like the best of both worlds. What do you think?
Financial Planner: It’s a widely chosen option, especially in India, but let’s see if it aligns with your financial goals. Are you mainly looking for protection, wealth creation, or a balance of both?
Policy Buyer: Honestly, I want both. I like the idea of getting a lump sum at maturity and still having life cover after that. Plus, it feels safe because it’s from a reliable insurer.
Financial Planner: That safety aspect is appealing, no doubt. But let’s break it down with some numbers to see the full picture.
Policy Buyer: Sure!
Financial Planner: Let’s say you’re 30 years old and buy a policy that combines an endowment plan with whole life coverage. You choose a ₹10 lakh sum assured with a 25-year term, paying a premium of about ₹40,000 annually.
Policy Buyer: Got it. And what do I get at maturity?
Financial Planner: After 25 years, you’d receive the sum assured + bonuses. Based on current bonus rates, your maturity payout might be around ₹20 lakh.
Policy Buyer: ₹20 lakh sounds pretty good for a safe, guaranteed plan!
Financial Planner: It sounds attractive upfront, but let’s calculate your Internal Rate of Return (IRR). You’re paying ₹40,000 annually for 25 years — that’s a total outlay of ₹10 lakh. The ₹20 lakh maturity value gives you an IRR of around 5-6% per annum.
Policy Buyer: Hmm… that’s lower than I expected.
Financial Planner: Exactly. And that’s without accounting for inflation. Over 25 years, inflation will reduce your purchasing power, meaning that ₹20 lakh might not buy as much as you think.
Policy Buyer: But what about the life cover? That part still gives me peace of mind.
Financial Planner: That’s true, but here’s an alternative approach:
- You could buy a ₹1 crore term insurance policy for about ₹10,000–₹15,000 per year.
- Invest the remaining ₹25,000–₹30,000 annually in an equity mutual fund SIP, which has historically delivered 10–12% returns over the long term.
Policy Buyer: And how much could that SIP grow to?
Financial Planner: With a 12% annual return, your SIP could grow to around ₹75–80 lakh in 25 years. Add your ₹1 crore term cover, and you’re financially protected and building real wealth.
Policy Buyer: So, if I choose the policy, I’m trading away potentially higher returns for guaranteed safety?
Financial Planner: Exactly. If capital preservation and lifelong coverage are your priorities, this policy might suit you. But if you want to grow wealth and outpace inflation, a term plan + mutual fund combo could be far more efficient.
Policy Buyer: That’s eye-opening. I guess I need to decide what matters more — guarantees or growth.
Financial Planner: That’s the heart of it! The right choice depends on your financial goals and risk tolerance. Let me know if you’d like me to help you craft a more balanced strategy.
This version adds more punch to the conclusion, emphasizes inflation’s impact, and reinforces the term + SIP strategy’s power. Let me know if you’d like me to tweak it further or explore another angle!
Simplified Money Talks 