Endowment Plan
An endowment plan is a traditional life insurance policy that pays a fixed lump sum to the policyholder either on maturity (if alive) or to the nominee on death (if death occurs during the policy term) — combining life cover with savings.
Understanding Endowment Plan
Endowment plans were popular in the 1990s-2000s as the default "safe savings + insurance" product, sold heavily by LIC and other insurers through agent networks. Modern analysis (decades of consumer data) shows endowment plans deliver poor risk-adjusted returns compared to splitting into term insurance + mutual funds.
The structural problem: endowment plans bundle life cover and investment, with both being suboptimal in the package. The life cover is expensive (much less coverage per rupee than term insurance), and the investment portion typically earns 4–6% post-tax — barely beating fixed deposits.
Why it matters
Endowment plans should generally be avoided. The single financial planning hack that creates the most wealth for most Indians: stop endowment policies, switch to term insurance + equity mutual fund SIP. The math is decisive — a 30-year-old can build 4–5× more wealth with the same premium outlay.
Example
A 30-year-old buys an endowment plan with ₹50,000 annual premium for 20 years, sum assured ₹10 lakh. Total premium paid: ₹10 lakh. Maturity value (typical): ₹14–17 lakh, depending on bonus declarations — implying a post-tax IRR of around 4-5%. The same ₹50,000/year split as ₹15,000 term + ₹35,000 equity SIP would give ~₹1.5 crore term cover + ₹70 lakh equity corpus over 20 years.
A 30-year-old buys an endowment plan with ₹50,000 annual premium for 20 years, sum assured ₹10 lakh. Total premium paid: ₹10 lakh. Maturity value (typical): ₹14–17 lakh, depending on bonus declarations — implying a post-tax IRR of around 4-5%. The same ₹50,000/year split as ₹15,000 term + ₹35,000 equity SIP would give ~₹1.5 crore term cover + ₹70 lakh equity corpus over 20 years.