Life Insurance – Endowment Plan is the Worst Plan😟

Many people in India may not be familiar with the name “Endowment Plan” but they might already have one or two life insurance of this plan.

In the Endowment Plan, One gets so-called ✌️insurance cover and saving plan✌️ both. i.e. (he pay some amount as a premium to an insurance company and if he survives during the life of the policy then he will get the premium as well as some additional bonus back on the maturity date or if he dies during the policy term, he will get the assured sum). This is the mantra insurance agents use to get one on board and make a hefty commission for themselves. Insurance agents generally get up to 25% upfront commission and up to 10% every year.

I hope you now get an idea of which plan I am talking about. I will tell you how these insurance agents fool you by hiding important information from you.

Have you ever calculated return on your endowment plan? The answer will be NO (most probably).

No problem, let me share with you the return I calculated for one of my relative who was also cheated by one of the insurance agents –

Premium = 51,220
Sum Assured = 9,33,141
Return = 4.25%

Endowment Plan
IRR = 4.25%
Year PAUOUT PAYIN Ternminal Benefit Net
0 -51220 0 0 -51220
1 -51220 0 0 -51220
2 -51220 0 0 -51220
3 -51220 0 0 -51220
4 -51220 0 0 -51220
5 -51220 0 0 -51220
6 -51220 0 0 -51220
7 -51220 0 0 -51220
8 -51220 0 0 -51220
9 -51220 0 0 -51220
10 -51220 0 0 -51220
11 -51220 0 0 -51220
12 0 61799 0 61799
13 0 61799 0 61799
14 0 61799 0 61799
15 0 61799 0 61799
16 0 61799 0 61799
17 0 123598 0 123598
18 0 123598 0 123598
19 0 123598 0 123598
20 0 123598 0 123598
21 0 123598 0 123598
22 0 0 100880 100880

The above table shows an example of returns on an endowment plan. The calculated return is very low at 4.25% p.a and this is almost like having the money in a Saving Bank A/c. All endowment plans give a similar return of around 4-5% p.a.

This plan is neither proper insurance (sum assured is very low) nor a proper investment (return is very low). This is only in favour of insurance companies and their agents.

Endowment Plan vs. Term Insurance:

Person’s Age – 46 Years (Premium depends on the age. Lower the age, Lower the premium)

Endowment Plan Term Insurance
Premium 51,220 18,000
Sum Assured 9,33,141 1,00,00,000
Survival Benefit Yes (equal to saving bank a/c only) No (Pure Life Insurance)
Recommendation Not at all Must

What should one do?

We recommend that one takes a Term Insurance equal to 10x of his annual income. It will cost much cheaper than the endowment plan and deposit the remaining amount in a PPF account.

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