Let me say this straight. Insurance should never be mixed with investment. Period. I know your uncle or that friendly LIC agent will tell you otherwise. They will show you a nice chart where your money grows and you get a lump sum at the end. Sounds great, right? It is not. Here is why.
Term insurance gives you ₹1 Crore of life cover for about ₹10,000 to ₹15,000 a year if you are in your late twenties or early thirties. That is it. Pure protection. If something happens to you, your family gets the money. If nothing happens, you paid for peace of mind. Simple.
Now look at ULIPs. They charge you a Premium Allocation Charge, a Policy Admin Charge, a Fund Management Charge, and a Mortality Charge. By the time all these fees are done with your money, you are left with returns that barely beat a fixed deposit. I have seen people hold ULIPs for 15 years and get 5 or 6% returns. You could have put that money in a simple index fund and got 12% or more. The math does not lie.
Endowment plans are even worse. They promise you "guaranteed" returns and a maturity amount. In reality, you get 4 to 6% IRR. That barely beats inflation. Your money is locked in for years, and you cannot touch it without losing a chunk. Meanwhile, the agent who sold it to you got a fat commission. I am not saying agents are bad people. I am saying the product is bad for you.
So what should you do? Buy a term plan. Get 10 to 15 times your annual income as cover. If you have a home loan or other big loans, add those to the number. That is the real amount your family would need if you were not around. Then take whatever you would have paid for a ULIP or endowment plan and put it in direct mutual funds. Index funds, flexi caps, whatever fits your risk. Over 20 years, you will end up with 2 to 3 times more money than you would have from a ULIP. I have run the numbers. It is not even close.
I know the sales pitch is tempting. "Sir, you get insurance and investment in one product. So convenient." Convenient for whom? For the company that gets to charge you fees on both. For you, it is a raw deal. Keep insurance and investment separate. Buy term, invest the rest. Your future self will thank you.
One more thing. Do not wait. Term insurance gets more expensive as you get older. If you are 25, lock in a 30-year term plan now. The premium will stay fixed for the entire period. If you are 40 and still thinking about it, the premium will hurt. Get it done. And please, skip the ULIP. Your uncle might not like it, but your wallet will.