Term insurance vs endowment — why most Indians buy wrong

Term insurance exists for one purpose: if you die early, your family receives a large sum that replaces your income for years. Premiums are comparatively low because there is no investment promise — you are paying only for risk transfer to the insurer.

Traditional endowment or money-back plans bundle a small death benefit with savings. Agents often highlight “guaranteed” maturity, but the implied return after charges is frequently modest. Meanwhile, the death coverage per rupee of premium is tiny compared with term plans, leaving families underinsured precisely when the amount matters most.

The right sequence for most households: buy adequate term cover on the primary earner(s) — commonly quoted rules are 10–15 times annual income adjusted for loans — then invest separately in mutual funds, EPF, PPF, or other vehicles matched to goals. You get transparency, liquidity, and usually better long-term compounding than opaque bundled products.

Endowment or whole-life products may still suit very specific needs — forced savings for extremely risk-averse investors, or legacy planning in niche cases. But they should not replace term cover; they are complements at best, not substitutes.

Before signing, ask for the internal rate of return net of all charges and compare with a simple PPF plus term combo. If the bundled product cannot beat that benchmark with room to spare, you are paying extra for packaging, not performance.