Term insurance vs endowment: why we separate protection from investment
One of the most common patterns we see in portfolio reviews is a family with four or five insurance policies — endowment plans, money-back plans, ULIPs — and inadequate life cover.
The premiums are significant. Often two to three lakhs a year across all policies. But the total death benefit might be forty or fifty lakhs. For a family whose primary earner has an HLV of two crores, that is a coverage gap of over one and a half crores.
How does this happen? Because the policies were sold as investment products. "You get money back at maturity." "It is like a savings plan with insurance." "Tax benefits under 80C." All true, technically. But the consequence is that a large chunk of the family's annual savings goes towards products that deliver neither adequate protection nor competitive investment returns.
A pure term plan — the simplest, most boring insurance product available — could provide two crores of cover for a fraction of the premium those endowment plans charge. The remaining premium, redirected into a disciplined SIP, would almost certainly build more wealth over the same period than the maturity value of those policies.
This is not a criticism of the families who bought these products. They were sold what sounded responsible. It is a criticism of the framing: the idea that one product can do two jobs well. In our experience, it rarely can.
At Dhansanchay, we do not ask families to surrender existing policies impulsively — that has its own costs and tax implications. But we do ask them to calculate two things: what is your actual death benefit across all policies, and what is your HLV? If the gap is large, a term plan fills it immediately and cheaply. The existing policies can then be evaluated individually — keep, make paid-up, or surrender — based on their specific terms and the family's specific situation.
Protection and investment are both essential. They are just better at their jobs when they are not forced to share a seat.
We would rather you own less and understand more than the reverse. Use notes like this to ask better questions — not to shortcut diligence. Scheme documents, costs, and your own goals still come first. Written for general education — not as individual investment, tax, or legal advice.