Author: Chinnagounder Thiruvenkatam Published Date: May 16, 2026 Last-Verified Date: May 16, 2026
If your life insurance policy pays you a lump sum when it matures – when the policy term ends and you are still alive – you are almost certainly holding an endowment plan. And if you have been holding it for more than five years, the single most useful thing to know is this: the money you think you have been saving inside that policy has been growing at 4 to 5.5 percent per year. A post office time deposit pays 7.5 percent per annum as of May 2026. A fixed deposit at most scheduled commercial banks pays between 6.5 and 7.25 percent.
Your insurance savings are earning less than an instrument available at any post office counter, without any medical tests or paperwork.
This article explains why this happened, what the actual numbers look like for a typical Indian household, and – most practically – what the three options are for someone who already holds an endowment policy and is trying to decide what to do next.
What Each Product Actually Is – Without the Brochure Language
Term insurance is a pure protection product. You pay a premium every year. If you die during the policy term, your family receives the sum assured. If you survive the policy term, the policy ends and you receive nothing. There is no maturity benefit, no bonus, no savings component. The premium is low because the insurer is only providing one thing: a guarantee to pay your family if you die.
An endowment plan combines insurance with a savings element. Part of your premium pays for the life cover. The rest goes into a fund managed by the insurer, which accumulates and is paid to you at the end of the policy term if you are alive, or to your family if you die. You receive a maturity benefit either way – which is why agents describe it as “money back guaranteed.”
A ULIP (Unit Linked Insurance Plan) is a third category – an endowment plan where the savings portion is invested in market-linked funds rather than the insurer’s internal fund. Returns are higher in good market conditions and lower in bad ones. ULIPs have high charges in the first five years and require sustained discipline over ten to fifteen years to deliver on their stated potential. They are outside the scope of this comparison but worth naming so there is no confusion between the three categories.
The Maths on a Typical Scenario – Shown Plainly
Suresh, 43, bought a LIC Jeevan Anand policy at age 25. Premium: ₹28,000 per year. Policy term: 25 years. Sum assured: ₹5 lakh. At maturity, he will receive approximately ₹12 to ₹14 lakh depending on the bonuses declared by LIC over the period.
He will have paid ₹7,00,000 in total premiums over 25 years. He will receive approximately ₹13 lakh back. The gain is ₹6 lakh over 25 years on an investment of ₹7 lakh. The internal rate of return on this – the actual annualised return, calculated using the time value of money – is approximately 4.5 to 5 percent per year.
Now the alternative. A 25-year-old buying ₹1 crore of term cover from LIC Tech Term – LIC’s own online term plan – pays approximately ₹8,500 to ₹10,000 per year for a 30-year term (premium verified at licindia.in for a 25-year-old non-smoking male, May 2026). The remaining ₹18,000 to ₹19,500 per year, invested in the Public Provident Fund at the current rate of 7.1 percent per annum, grows to approximately ₹1.24 crore over 25 years.
Comparison at the end of 25 years. Endowment plan: ₹13 lakh, insurance cover of ₹5 lakh throughout. Term plus PPF: ₹1.24 crore in PPF, insurance cover of ₹1 crore throughout. The protection during the 25-year period is 20 times higher. The terminal value is nearly 10 times higher. Total premiums paid are approximately the same.
These numbers are directional, not precise – PPF rates change, LIC bonuses vary, and individual health and age affect term premiums. But the order of magnitude difference does not change under any reasonable assumption.
Why the Agent Pushed the Endowment Plan – the Commission Structure
Insurance agents in India are paid commissions regulated by the Insurance Regulatory and Development Authority of India (IRDAI). As of the IRDAI regulations current at May 2026, the first-year commission on traditional life insurance plans (endowment, money back, whole life) can be as high as 35 percent of the annual premium for policies with a term of 12 years or more. Renewal commissions are typically 7.5 percent of the annual premium for the second and third year, and 5 percent thereafter.
On Suresh’s policy with a ₹28,000 annual premium: the agent received approximately ₹9,800 in year one. In each subsequent year, approximately ₹2,100. Over 25 years, the agent has earned approximately ₹60,000 in commissions from this one policy.
On an equivalent term plan with a ₹10,000 annual premium: the first-year commission is ₹3,500. Renewal commissions are lower in absolute terms because the premium is lower.
The agent is not doing anything illegal. These commission structures are set by the regulator. But they create a predictable incentive: endowment plans generate more commission per customer than term plans, and the policies sold tend to reflect this. A bank relationship manager suggesting insurance products, a post office official, a financial advisor at a cooperative society – the incentive structure is the same across channels. This is the context within which “always buy term” advice must be understood: it is technically correct, but it runs against the financial interests of every intermediary the customer typically encounters.
The Social Contract Around Insurance in Indian Households
There is a dimension of Indian insurance buying that no financial article addresses directly, and it explains why straightforward advice – “switch to term insurance” – fails to change behaviour for millions of Indian households.
The LIC agent in most Indian middle-class households is not a stranger. She is a neighbour’s wife who has sold policies in the colony for twenty years. He is a relative from the mother’s side who took up the agency after retirement. She is the wife of a colleague. The insurance sale is embedded in a social relationship. Refusing to buy is experienced as a personal rejection, not a financial decision. And when the time comes to stop renewing, or to surrender, the action carries social weight that a purely financial analysis does not capture.
This does not mean you should continue holding a product that does not serve your family’s interests. It means that the transition – from endowment to term, or from continuing to stopping a policy – should be managed with the same thoughtfulness as any significant relationship decision. Surrendering quietly during a policy anniversary without confrontation is an option. Buying term separately and allowing the endowment to lapse naturally after it has been held long enough to recover some value is another. The financial logic and the social reality can be navigated simultaneously.
If You Already Have an Endowment Plan – Three Specific Options
This is the section most articles skip. They advise against buying endowment plans but say nothing useful to the person who already holds one and needs to decide what to do next. There are three options, and the right one depends on how long the policy has been in force.
If the policy is less than three years old, the surrender value is zero. The insurer keeps all premiums paid. This is the worst position to be in. If you are in this situation, the decision is genuinely difficult: continue paying to reach a point where surrender recovers some value, or accept the loss and redirect the premium to a term plan immediately. The right answer depends on the premium size, your financial position, and how long the policy term is. A policy with 20 remaining years at ₹30,000 per year has ₹6 lakh of future premiums at stake – stopping makes sense even with zero surrender value. A policy with 3 remaining years at ₹8,000 per year may be worth completing for the maturity benefit.
If the policy has been in force for three to seven years, a surrender value exists – typically 30 to 50 percent of total premiums paid. This is a partial recovery, not a full one. Before surrendering, calculate the surrender value from the policy document or by calling the LIC branch, compare it to the remaining premiums you would pay, and estimate the maturity benefit. If the remaining premiums plus the opportunity cost of continuing exceeds the maturity benefit by a significant margin, surrender is the better financial decision. Reinvest the surrender amount into a more productive instrument immediately.
The third option – making the policy “paid-up” – is available for policies that have been in force for at least three years. A paid-up policy stops requiring further premium payments. The sum assured is reduced proportionally, but the policy remains in force and will pay the reduced sum at maturity or on death. This is often the least disruptive option: it ends the ongoing premium commitment without triggering a surrender and partial loss. The policy quietly completes its term in the background at a reduced benefit. Check the specific paid-up conditions in your policy document, as they vary by plan.
What to Buy Instead – Verified Current Options
For a 35-year-old non-smoking Indian male seeking ₹1 crore cover for 30 years, indicative annual premiums as of May 2026 on online term plans:
LIC Tech Term (purchased directly at licindia.in): approximately ₹12,000 to ₹14,000 per year. LIC’s own online term plan, not sold through agents, which is why its premium is lower than agent-sold LIC products. LIC’s claim settlement ratio as reported in the IRDAI Annual Report 2023-24 is 98.62 percent – among the highest in the industry. For families that specifically want LIC due to trust in the brand, this is the correct product.
HDFC Life Click 2 Protect Super (purchased at hdfclife.com): approximately ₹9,500 to ₹11,500 per year for the same cover and term. HDFC Life’s claim settlement ratio for 2023-24 is 99.39 percent per IRDAI data. Available entirely online without an agent.
Max Life Smart Total Elite Protection (at maxlifeinsurance.com): approximately ₹9,000 to ₹11,000 per year. Claim settlement ratio 99.51 percent per IRDAI 2023-24 annual report – the highest among major insurers that year.
All three are genuine online term plans purchased directly from the insurer without intermediary commission, which is why premiums are lower. Premium varies by age, health status, smoking status, and sum assured. Get an exact quote with your actual details before making any decision. Quotes are free and require no commitment on any of these sites.
The section 80C deduction for term insurance premiums is available only if the annual premium does not exceed 10 percent of the sum assured. A ₹10,000 premium on a ₹1 crore sum assured is 1 percent – well within the limit. The full premium is deductible under 80C. An endowment plan premium that exceeds 10 percent of its sum assured – common in older traditional policies where the sum assured is low relative to the premium – loses this deduction entirely, a detail most policyholders do not know until they check.
Two Indian Households – What They Did and What Changed
Meena Krishnaswamy, 39, software professional, Bengaluru. She had held a LIC money-back policy for nine years, paying ₹22,000 per year. Sum assured: ₹3 lakh. She calculated the surrender value – approximately ₹95,000 at nine years. She surrendered, took the ₹95,000, put it into a liquid mutual fund, and immediately bought ₹75 lakh of term cover for her age (39, female, non-smoker) at approximately ₹8,200 per year. Her annual insurance expenditure dropped from ₹22,000 to ₹8,200. She redirected ₹13,800 per year into the Employees’ Provident Fund voluntary contribution. Her family’s protection increased from ₹3 lakh to ₹75 lakh. She notes that the LIC agent – her mother’s colleague – was upset. She managed the conversation by framing it as a health development that changed her financial planning needs, which was partially true.
Prakash Deshmukh, 51, government school teacher, Pune. He has held a LIC Jeevan Anand policy for 22 years. Surrender at this stage would recover most of the accumulated value but forfeit the maturity bonus on the remaining three years. He made the policy paid-up – stopped premium payments, accepted a reduced sum assured for the remaining term. He used the freed ₹26,000 per year to buy a ₹25 lakh term cover (at 51, the premium is higher – approximately ₹22,000 per year for ₹25 lakh for a 15-year term). His family’s effective cover in the event of his death is now higher than before at lower ongoing cost. He retires at 60, by which point the endowment matures and the term plan completes. Both products end at approximately the same time.
Frequently Asked Questions
Is LIC bad? Should I avoid all LIC products?
LIC is a legitimate insurer with the highest claim settlement ratio among major Indian life insurers at 98.62 percent (IRDAI Annual Report 2023-24). The criticism is not of LIC as an institution but of the endowment product category as a financial instrument for most Indian households. LIC’s own online term plan – LIC Tech Term – is a straightforward, well-priced pure protection product available at licindia.in. The problem in Indian insurance is not which company sells the policy but which category of policy is being sold. Term insurance from any insurer with a high claim settlement ratio is the right product for most households. Endowment from any insurer is typically the wrong financial instrument for wealth creation.
What is the minimum sum assured I should have on a term plan?
The standard guidance from financial planners is 10 to 15 times your annual income. On a ₹6 lakh annual salary, this suggests ₹60 to ₹90 lakh of term cover. This is a starting point, not a precise formula. Add outstanding liabilities – home loan balance, car loan, any other debts – to the calculation. A household with a ₹40 lakh home loan balance and ₹60 lakh income replacement need requires at least ₹1 crore of cover. Most Indians who hold only endowment policies are covered for ₹5 to ₹10 lakh at most – a fraction of what their families would need to maintain financial stability after the primary earner’s death.
I am 50 years old. Is it too late to buy term insurance?
It is not too late, but the premium is substantially higher at 50 than at 30 or 35. A 50-year-old non-smoking male can typically buy ₹50 lakh of term cover for a 15-year term at approximately ₹18,000 to ₹25,000 per year depending on the insurer and health status. Medical tests are required at this age – blood work, ECG, and sometimes more depending on declared health history. The cover is available if health status is acceptable. Get quotes from multiple insurers online before committing, as pricing varies significantly at older ages based on the insurer’s underwriting approach.
Does surrendering an LIC policy affect my CIBIL score?
No. Surrendering an insurance policy is a contractual transaction between you and the insurer. It is not a credit event and does not appear on your credit report at any of India’s four credit bureaus. Your CIBIL score, Experian score, and other credit scores are unaffected by insurance decisions. If you have taken a loan against your LIC policy (loan against surrender value is available from LIC), repaying that loan before surrendering is required – and the loan repayment history does appear on your credit profile. But the policy surrender itself has no credit reporting dimension.
Can I use term insurance premium to save tax under Section 80C?
Yes, subject to one condition: the annual premium must not exceed 10 percent of the sum assured. For most term plans where the sum assured is ₹50 lakh or ₹1 crore and the annual premium is ₹8,000 to ₹15,000, the premium is well within this limit and the full amount is deductible under Section 80C. For older endowment policies where the sum assured might be ₹5 lakh and the annual premium ₹25,000, the premium exceeds 10 percent of the sum assured and the deduction is not available at all. Many endowment policyholders have been claiming this deduction incorrectly for years without realising the limit applies. Verify your specific policy’s position with a chartered accountant if you are uncertain.
My family is used to the idea of LIC as savings. How do I explain the switch?
Frame it around protection, not criticism of the existing policy. “I want to make sure the family is properly covered if something happens to me – the current policy only provides ₹5 lakh but we need ₹75 lakh to cover the home loan and living expenses.” Most family members respond better to “I am increasing our protection” than to “I have been paying the wrong product for ten years.” The financial correction and the family communication can both be done thoughtfully.
What happens to the endowment policy’s maturity amount – is it taxable?
Maturity proceeds from a life insurance policy are exempt from tax under Section 10(10D) of the Income Tax Act, provided the annual premium paid does not exceed 10 percent of the sum assured. Policies where the premium exceeds this threshold – again, common in older traditional policies – have taxable maturity proceeds. Policies issued after April 1, 2023 where the annual premium exceeds ₹5 lakh have taxable maturity proceeds regardless of the 10 percent rule, under the amendment introduced in the 2023 Union Budget. For most middle-income policyholders with premiums under ₹5 lakh per year and sum assured of at least 10 times the premium, the maturity amount remains tax-free. Verify your specific policy’s position with a tax professional.
Information last verified: May 16, 2026. Primary sources: IRDAI Annual Report 2023-24 at irdai.gov.in for claim settlement ratios and commission regulations; India Post time deposit rates at indiapost.gov.in (7.5 percent for 5-year term deposit, verified May 2026); PPF interest rate at Ministry of Finance notification, 7.1 percent for Q1 2026-27; LIC Tech Term premium indicative quote at licindia.in, verified May 2026; HDFC Life Click 2 Protect Super indicative premium at hdfclife.com, verified May 2026; Max Life Smart Total Elite Protection premium at maxlifeinsurance.com, verified May 2026; Section 80C and Section 10(10D) provisions from the Income Tax Act as amended through Finance Act 2023, at incometax.gov.in.
The premium figures in this article are indicative for a 35-year-old non-smoking male purchasing online directly from the insurer. Your actual premium will depend on your age, gender, health status, smoking history, and the specific plan variant. Get a personalised quote from the insurer’s website before making any purchase decision.
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Disclaimer:
This article is for educational and informational purposes only. It does not constitute financial advice. Insurance and investment decisions should be made in consultation with a registered financial advisor or AMFI-registered mutual fund distributor who has access to your complete financial situation.
Chinnagounder Thiruvenkatam is the Founder and Publisher of dailyhindnews.in/ and Tips Clear Media LLP, Chennai. A 25-year veteran of the Central Reserve Police Force (CRPF) and full-time digital publisher since 2016. Full author profile