Confused with Different Types of Term Plans? Here is How to choose the Right Term Plan

When it comes to buying life insurance for yourself, the best option is to go for a simple term insurance policy. Period.

With that aside, your next question would be – which is the best term insurance plan to buy?

The answer isn’t simple anymore.

Earlier, term plans came in just one version, i.e. they paid lumpsum (sum assured) at the death of the insured person.

But now, the insurance companies have introduced many variations of these term life insurance plans.

Majorly, these variations give the policyholder different options to decide how the total sum assured is paid out to the nominee in case of policyholder’s death.

But think about it…

Why would you anyone even think about the other versions of the simple term plan?

It will become clear as I explain it in the next sections.

You will realize that just buying a Rs 1 crore term plan or some other plan is not enough. You really need to think hard about how the money will be handled after you and accordingly, choose the right version of the term plan.

So let’s move on…

Types of Term Insurance Policies in India

Let’s see how these term plan varieties differ from each other.

1 – Term Plan with Lumpsum Payout

This is the most basic version.

Let’s say you buy a term plan of Rs 1 crore. In case you die during the policy tenure, your nominee will be paid the full amount of Rs 1 crore in one go. Nothing more, nothing less.

There is nothing much to explain about this option.

The other remaining options of the term insurance plans in India take the staggered route to money payout.

2 – Term Plan with Fixed Monthly Payout

In this plan, there is no lumpsum payout. Instead, the sum assured is utilized to provide a regular monthly income to the nominee for a fixed number of years.

For example – You take Rs 1 Crore term plan. Now if you die within the policy tenure, then the sum assured is paid out as a monthly income of Rs 83,333 for next 10 years (i.e. Rs 83,333 x 12 x 10 = Rs 1 Cr).

This monthly income can either be fixed (as above) or can also be increasing one.

3 – Term Plan with Lumpsum + Fixed Monthly Payout

In this plan, a percentage of the sum assured is paid out at the time of death. The remaining amount is paid as a monthly income, which is a fixed percentage of the remaining sum assured for a fixed number of years.

For example – You take Rs 1 Crore term plan. Now if you die within the policy tenure, a percentage of the sum assured let’s say 40% (i.e. Rs 40 lac) is paid out immediately. The remaining 60% (or Rs 60 lac) is paid out as monthly income of Rs 50,000 for next 10 years (i.e. Rs 50,000 x 12 x 10).

4 – Term Plan with Lumpsum + Increasing Monthly Payout

In this plan, a percentage of the sum assured is paid out at the time of death. The remaining amount is paid as a monthly income, which increases at a pre-determined percentage on a simple interest basis on every policy/death anniversary for a fixed number of years.

For example – You take Rs 1 crore term plan. Now if you die within the policy tenure, a percentage of the sum assured let’s say 40% (i.e. Rs 40 lac) is paid out immediately. The remaining is paid out as a starting monthly income of Rs 50,000 which increases by let’s say 10% every year. So next year, the monthly payout will be Rs 55,000 and so on. Generally, the total payout in this version is more than the original sum assured.

In both the above options (lumpsum + fixed monthly payout and lumpsum + increasing monthly payout), the lumpsum % can be different as per insurer’s or policyholder’s choice. There are many plans that even pay 100% of the sum assured upfront and additionally pay a monthly income (fixed or increasing) to the nominee.

For example – You take Rs 1 crore term plan. Now if you die within the policy tenure, full Rs 1 crore is paid out to the nominee immediately. In addition, a monthly payout of Rs 50,000 is made for the next 10 years. The total payout in this version is more than the original sum assured. To be exact, it is Rs 1 crore + Rs 60 lac (Rs 50,000 x 12 x 10).

These are the major versions of the term plans that are available these days.

Now let me address the point that I raised earlier – Why would anyone even think about the other versions of the simple term plan where the payout is staggered?

Quite often, the nominees lack proper personal financial knowledge when it comes to handling large sums of money. So once they receive a large amount, they may be unable to properly manage the sudden increase in wealth and end up losing it by listening to the wrong people.

So in order to overcome this concern, many insurance companies came up with various other payout options.

This way, the nominees receive a part of the amount as lumpsum to take care of immediate concerns (like closing all loans, other big expenses in the near term). The remaining amount is paid as monthly payments over a pre-decided number of years, to replicate the regular income pattern and help smoothen the life of the nominees.

That is the major reason for the launch of these different versions.

So depending on the ability of your nominees to handle money, you should pick the adequate option:

  • If you are sure your nominee is well-versed in personal finance, then you can go for the full lumpsum payout term plan.
  • If you feel the nominee is better off not having a large amount suddenly (due to any reason you think), then you can go for the staggered-payout term plans.
  • If you feel that if your sudden death will result in financial chaos (due to outstanding loan or planned big expenses in the near term), then you can take the term plan that pays a % as lumpsum and remaining as monthly income (if you feel the nominee will be unable to handle money properly).

As you might be feeling right now, there are cases where opting for the staggered payout option actually makes sense.

Ofcourse from a purely financial perspective, it’s best to take the lumpsum and invest it efficiently and try to generate income from it for the nominees. But all decisions cannot be taken just from mathematical perspectives.

Do premiums vary for different Term Plans?

Yes of course.

Different versions of the term plan have different premiums.

To give you an idea, here is a snapshot of the various versions, with their benefits and approximate annual premiums for a 30-year old, non-smoking male living in a metro city and buying a 30-year term plan:

Types Term Insurance Plans India Premiums

The first one is the normal term plan that you know of – pays lumpsum amount (equal to the sum assured at the death of policyholder). Others are different plans paying different monthly incomes which is either fixed or increasing each year.

There are several term insurance premium calculator available online. It’s best to check out the premiums for different types of policies for yourself.

The actual premium that you will have to pay will depend on a variety of factors. If you take a policy for a longer tenure, then it will cost more. In general, shorter the policy term, lower will be the premiums. To choose the right policy term, do read what should be the ideal term insurance policy term?

And I almost forgot telling you about another variety of Term Plans that has been pitched by a lot of agents in recent times – Return of Premium Term Plan.

Is Return of Premium Term Plan Good?

A lot of people who wish to buy term plans have this feeling that since they will survive the policy period, the premium which they are paying will be wasted.

For these people, insurance companies have come up with a term plan where the premium paid over the course of policy tenure is returned back if the person survives.

At the face of it, this seems like a good idea. And this policy did address the concerns of people who thought that the term plans are a waste of money.

But if you deep dive a bit, things aren’t that great. Such policies have premiums much higher than the normal term plans.

If we were to compare a plain term plan (that only pays lumpsum amount) with a term plan (that also only pays lumpsum) with the return of premium option, then the premiums are Rs 9717 for a plain term plan and Rs 24,968 for return-of-premium term plan.

These premiums are for a 30-year old, non-smoking male buying a 30-year term plan living in a metro city.

Let’s compare these two plans a bit more.

The total premium paid is Rs 2.91 lac for plain term plan (Rs 9717 annually x 30 years) and Rs 7.49 lac for return-of-premium term plan (Rs 24,968 annually x 30 years).

In case of death during policy tenure, the nominee gets Rs 1 crore in both cases (as the sum assured is same).

But in case of survival, things change.

In case of plain term plan, you get back nothing – that is, you don’t get back Rs 2.91 lac. On the other hand in case of Return-of-Premium Term Plan, you get back your Rs 7.49 lac.

You may again feel that the return of premium plan is better. But remember that you are paying a high premium for that.

The difference between the annual premium of the two plans is a little more than Rs 15,000 (= Rs 24,968 – Rs 9717).

If you invest this difference amount of Rs 15,000 every year at just 8%, then at the end of 30 years you will have about Rs 18-19 lac. Compare this with the amount the return-of-premium offers you at the end, i.e. Rs 7.49 lac.

So the obvious conclusion is that it’s better to not purchase a return of premium term plan. You are better off with either a simple term plan (or some of its variants that offer monthly income).


Term insurance is still the best insurance that you should be buying for covering your life. The traditional ones like endowment, moneyback insurance plans are best avoided.

But since term plans also come in various shapes in sizes, its natural to ask which is the best term insurance plan for you?

As mentioned earlier, the choice of the term plan variety is dependent a lot on how capable do you feel your nominees are in managing money. If they are financially aware, going for a lumpsum payout is best. If they aren’t and you want to provide them with a regular income for a few years after you die, then take the lumpsum + monthly income payout option. Or you can have the best of both worlds by taking two policies combining the two approaches.


Answers to 20 Important Questions about Term Life Insurance


20 questions Term Life Insurance

Term life insurance is the most basic form of life insurance. And I can safely say that it’s the most effective and the best form of insurance.


Because it gives you a very high insurance coverage (sum assured) at a very low premium. It’s perfect!

Many of you know about the benefits of choosing a term plan when compared to the whole menu of the available life insurance varieties. But this post is for those who are still not sure whether buying term insurance makes sense or not.

So here are answers to a few common questions that people have about term insurance plans.

Q1: How does Term Plan work?

A1: The buyer buys a term plan for a specified tenure. Let’s say 30 years. Now if the premiums are being paid regularly, then if the insured person dies between today and the 30th year, the insurance company will pay the sum assured to the nominee. If the person does not die during the tenure of the policy, nothing will be paid to either the insured person or the nominee.

Q2: Most people won’t die. So money paid in term plan premiums will be lost?

A2: Wrong way to look at it. Term plans are incredibly cheap. You can get a term plan of Rs 1 crore for just Rs 10,000 or even lower. On the other hand, a traditional insurance plan (like moneyback and endowment plans) can cost about Rs 25,000 for just a Rs 5 lac cover. The first thing to note is that this doesn’t make sense when you compare it with term insurance premiums. Second is that if you die, a payout of Rs 1 crore is more useful for your family than a payout of Rs 5 lac. Agreed that you won’t get anything back in term plan if you live. But what if you want to buy a Rs 1 crore cover using a traditional plan? Try to find it out. The premium will be so huge that you might not even be capable of paying it. So term plan allows you to give bigger protection to your family at a much lower cost.

Q3: What if I am lucky and don’t die? In any case, the premiums would be lost right?

A3: Read the answer to the above question again. That should convince you. Remember, insurance is being bought to protect the financial well being of your family if you die. It is not for your well being. But if it could make you feel any better, what you can do is this – Instead of buying a Rs 5 lac endowment plan for Rs 25,000, you go ahead and buy Rs 1 crore term plan for Rs 10,000. The amount you saved this way is Rs 15,000. Right? Invest this amount every year in equity funds. Chances are high that the total value of your investment after several years (like 20-30 years assuming that is your insurance policy tenure) will be much higher than what your Rs 5 lac endowment plan would give on maturity. And what more, all this while you had a big cover of Rs 1 crore as you bought the term plan. You get the best of both the worlds.

Q4: How much term insurance cover should I take?

A4: It is quite popular to go by thumb rules and take a sum assured of 15-20 times your current annual income. So for example, if your annual income is Rs 10 lac, you can buy a cover of about Rs 1.5 crore. But it’s better to not go by thumb rules alone and instead calculate it correctly. You can refer to this detailed post that I have already written on this topic – How to calculate the right life insurance amount?

Q5: How to decide the Right tenure of the Term Plan?

A5: Under most circumstances, an insurance cover may not be required much beyond retirement. And that is simply because most of your financial goals will be over by then and you would also have accumulated enough money to take care of your dependents (mostly spouse) if you were to die. So if you are 25, then you can take a cover of 35-years which covers you till you turn 60. But if you are 38, then even a 22-year term plan will be sufficient. Shorter the tenure, lower the premium. But if you want to be conservative, you can opt for a slightly longer tenure than what is necessary and just stop paying the premium when the need for insurance is not there. You can refer to this detailed post that I have already written on this topic – How to find the right tenure for the term life insurance policy?

Q6: Term plans are cheap no doubt. But why are online term plans cheaper than offline ones?

A6: When a term plan is purchased online, the costs incurred by the company are less, as there is no middleman between you and the insurance company. This lowering of cost is passed on to you as lower premium as no commission has to be paid to any agent. Most companies offer online versions of their term plans. If you are looking to buy the best online term plan, be sure to do your research and compare across insurance providers and then make the final decision.

Q7: Is the premium of term plans same for everyone?

A7: No. It varies for everyone as it depends on the person’s age, chosen policy tenure, the sum assured, payout method opted for and other premium loadings (if any) due to medical or lifestyle reasons.

Q8: Does the premium of the term plan change during the policy tenure?

A8: No. It remains the same.

Q9: If I die, are there different options in which the sum assured gets paid out to my nominees?

A9: Yes. Insurance companies allow you to chose how the money is paid out to the nominee in case of your death. Suppose you take a term plan of Rs 1 crore. Now if you die, the money can be paid out as any of the following (depending on what you have chosen):

  1. Full Rs 1 crore paid at the time of death
  2. Rs 10 lac paid at the time of death. Remaining 90% (i.e. Rs 90 lac) paid out equally as Rs 50,000 monthly (0.5% of sum assured) for next 15 years
  3. Full Rs 1 crore paid at the time of death. Additionally, Rs 50,000 paid monthly (0.5% of sum assured) for the next 15 years
  4. Full Rs 1 crore paid at the time of death. Additionally, starting with Rs 50,000 monthly (0.5% of sum assured) and increasing by 10% every year paid out for the next 15 years
  5. And there can be many other options depending on what the insurance provider is offering at that time.

Obviously, the premiums charged in each variety would be different. Which one should you chose depends on your need. If your nominees know how to manage a large amount to generate regular income, you can go for simple 1st option. But if you feel they are better of receiving money regularly, then probably you can go for 2nd option (or even the 3rd or 4th option which will have higher premiums). You can even have 2 separate policies with different versions chosen for payout in case of death.

Q10: Should I opt regular premium or single premium?

A10: You can choose either. In regular, you pay premiums every year. In single premium, you premium once and never again. But let’s say you buy a 25-year term plan and die after 5th year. Now if you have taken the regular premium route, then you would only have paid 5 small premiums. But if you had opted for the single premium, then you would have paid in one go and that potentially means that the 20 premiums got paid extra as you died early. Nominee gets the same amount irrespective of what you chose. But I think that’s too small an issue to bother about. You can actually do whatever you feel comfortable with. Some people want to just tackle it upfront (via single premium) and be done with it. Others don’t have a lot of surplus money to do it so prefer regular route. Whatever works for the buyer.

Q11: Does it make sense to buy term plans early or I should wait for some time?

A11: The premium amount increases with age. So earlier you buy, better it is. Also, with passing age, it’s possible that you may unluckily develop some disease that might make it difficult to get a policy later on. So don’t wait too long to buy a term plan later on. Buy it as soon as possible even if it seems too early to do so.

Q12: Does the term plan pay out even if I die in an accident?

A12: Yes.

Q13: Wouldn’t a Rs 10-20 lac term plan cover be enough for me?

A13: No. Don’t be penny-wise pound-foolish. Simply answer this question – If you die today, will your family be able to maintain their lifestyle, pay for children’s higher education, pay off loans and live well for decades to come in just Rs 10-20 lac? The answer will be a big No. So take a plan that takes care of all the above things. You can refer to the earlier mentioned post (about the same question) – How to calculate the right life insurance amount?

Q14: Will Rs 1 crore insurance be sufficient?

A14: Maybe yes. Maybe no. It’s not necessary. Different people will have different optimal insurance coverage requirements. Read this – Is Rs 50 lakh to Rs 1 Crore term insurance enough?

Q15: I want to take a term plan of bigger amount, say Rs 2 crore. Should I split it?

A15: You can do it. But keep it limited to 2-3 policies max. Better limit it to just 2. If you die, your family will have to run around to get all the policies paid out. So think from that perspective.

Q16: What if I am outside India if I die? Will it still pay money to my nominees?

A16: Yes. In most cases. Unless you go and die in a country that is on the unsafe list of the insurance company. So check the list before choosing a country to go and die!

Q17: I want to buy a term plan. But I have a health condition (or family’s health history is odd). Should I hide this information?

A17: Please don’t hide any such information. Death claims can be rejected if the insurance company finds out that you had hidden any critical information. So don’t do it. This may result in slight loading of premiums (increase in premium) that you have to pay. I think that’s much better than having a hanging sword of the possibility of claim rejection in case of death. Be willing to accept the loading of the premiums and move on with it.

Q18: I have few existing insurance policies. Should I disclose them while buying term plans?

A18: Yes. Don’t hide these either. There is nothing bad in having previous insurance policies.

Q19: I have purchased the term insurance. Now what?

A19: Tell your nominees about it. They should be aware of the policy in case you die. Only then they can claim the amount. Isn’t it?

Q20: Anything else?

A20: Stay healthy and try not to die. Your family will get the money if you die. But that’s not an ideal scenario. Isn’t it?

I hope that if you or someone was looking to answer – How to buy the right term life insurance policy? – then they found this article useful.

Insurance is not Investment. Don’t Mix the Two!

Is life insurance a good investment?

If you want a one-word answer, then its NO.

insurance vs investment

Life insurance is not an investment. Period.

Comparing insurance and investments and trying to pick either of two (or combining them) – is one of the biggest reasons why most people are unable to:

  1. Save enough
  2. Invest properly (and become rich)
  3. Have an adequate insurance coverage

I assume that most of you know that you need to keep insurance and investments separate – i.e. its always about Insurance Vs Investment 🙂

But if you have your doubts, then read on.

Any well thought out financial plan should include the following:

  • Insurance
  • Savings
  • Investments

And one should not try to mix the three.

But unfortunately, the lines that differentiate between insurance, savings and investments are often blurred.

Insurance Vs Investment

In India, insurance plans that double up as investments are extremely popular. So apart from the life cover that is available during the policy tenure, there are endowment policies that return a lump sum at maturity. Then there are Money-back policies that offer regular payouts at fixed policy intervals and one final payout at maturity. And there are hundreds of variants of these two popular insurance products.

But people buying an endowment plan or a moneyback policy don’t understand that they are not getting the best of both worlds by buying a hybrid product (that combines insurance with investments).

Instead, they are getting a product that is neither a good investment nor a good insurance.

Ofcourse, it is convenient to have just one product that takes care of everything.

But convenience should not result in sacrifice of the very reason why the product is being purchased – returns (for investment) and cover (for insurance).

Isn’t it?

So to put it bluntly, life insurance as an investment tool – is a flawed concept.

Why do people think that insurance and investment are same?

This is the biggest problem.

And the root cause of this problem is the status of tax-saving instrument – which is given to insurance plans.

Ask people about their investments and they will tell you that they invest in insurance!

Common tax treatment is the main reason why people compare insurance with investments and end up buying insurance-based investment products. This is also the reason why people think that once they are done with their tax planning, their financial planning is over too (which is wrong again)

Then there has never been a shortage of our family friend(ly) insurance agents, who have always been over-optimistic about the reason one should purchase insurance – to earn returns 🙂 and not as protection for dependents.

They will tell you everything about what an insurance policy can do for you – like death benefits, maturity benefits, bonuses, accident riders, etc. But they will never tell you about what would happen, had you simply purchased a term plan and invested rest of the money elsewhere.

(If you don’t understand what I am trying to hint here, don’t worry. I will come to the comparison in a bit. Then it will become crystal clear.)

Don’t mix Investment & Insurance. Why?

Let us take them one by one

When you invest, your main aim is to earn high returns. But when you mix investment with insurance, i.e. you ‘invest’ in insurance products 🙂 like endowment or moneyback plans, your returns are limited – around 4-6%.

Good equity funds can easily give you 12% kind of returns in the long run. So there is an opportunity cost of not investing in high-return products.

When you buy insurance, your main aim to have a life cover that is big enough to take care of everything (family’s regular expenses for years, major life goals like children’s education & marriage, etc.). But when you mix insurance with investment (like in endowment or moneyback plans), your life cover will be low unless you are ready to pay a hefty premium.

In contrast, pure life insurance policies (term plans) give big covers for very nominal premium.

A small personal example…

When I started earning, I was ‘forced’ to purchase an endowment plan as investment.

And if my memory serves me correctly, it was giving me a cover of Rs 5 lac for an annual premium of around Rs 30,000.

I later dumped that policy. I now have a term plan (one of many), which gives Rs 50 lac cover for about Rs 5000.

To summarize,

Earlier: Rs 5 lac cover – premium Rs 30,000 (traditional insurance policy)

Now: Rs 50 lac cover – premium Rs 5000 (pure insurance policy)

See the difference?

Infact, the ‘family friend’ who forced me to purchase the traditional plan was trying to convince me to create a life insurance based investment strategy! Thank God I realized what it meant – after just few years! 🙂

Many people ignore pure insurance plans because it gives no returns if they survive (on maturity).

But we must not forget that life insurance is not there to make us rich when we are alive. It’s to ensure that our dependents don’t become poor when we are not there.

Lets now see exactly why buying a pure insurance product is better than buying a traditional insurance product…

Traditional Life Insurance Policy Vs. Term Plans 

For the purpose of illustration, I am taking a popular endowment (+ whole life insurance) plan by LIC named New Jeevan Anand. For more details about this policy read this.

Suppose that a person aged 30 years, wishes to purchase an insurance policy with sum Assured of Rs 25 lac for a period of 20 years.

He has the option of either going in for a traditional insurance policy (like endowment plan) or a simple term plan.

The premiums for both policies will ofcourse be different. Lets see ‘how’ big the difference is:

Premium (Endowment Plan) – Rs 1,44,858/-

Premium (Term Plan*) – Rs 3996/-

(Premium data source – LIC’s own premium calculator)

* LIC eTerm Plan

Surprising. Isn’t it?

The difference in premiums is huge!

Agreed that term plans don’t give back anything in case you survive the policy term. But don’t you think that every year, the term plan leaves you with an additional amount (surplus that you save by not buying endowment plan) that can be invested elsewhere for better returns?

You might argue that endowment plans too offer returns if held till maturity. But returns given by traditional insurance plans are abysmally low – around 4-6%.

Simply speaking, for Rs 1.4 lac that you pay annually as premium, the insurance cover you are getting (Rs 25 lac) is shit inadequate! A simple term can give you same coverage for just Rs 4000.

Whether Rs 25 lac cover is enough for you or not is another question (check this article on how much cover to buy).

But what I am trying to highlight here is the huge difference in premiums.

Infact a cover that is four times larger (than Rs 25 lac cover), i.e. Rs 1 crore can be purchased using term plan at just about Rs 16,000. And this is the premium of term plan offered by LIC (plan name – eTerm). The private life insurers will offer the same cover at even lesser premiums!

Now lets put nail in the coffin of traditional insurance plans 😉


Endowment plan (Rs 25 lac cover) – Rs 1.44 lac annual premium

Term plan (Rs 1 crore cover) – Rs 16,000 annual premium

Annual premium difference – Rs 1.28 lac

Also note that term plan is giving a 4-times larger cover than endowment plan.

Lets see what happens at maturity…

Endowment Plan (at maturity)

Insurance Cover – Rs 25 lacs

Total Premium Paid – Rs 29 lacs (20 years x Rs 1.44 lacs)

Maturity Amount – Rs 50-60 lacs or maybe 70 lacs.

Let us compare this with a combination of Term Plan + Equity Funds (giving 12% annual returns)

Term Plan (at maturity)

Insurance Cover – Rs 1 crore (four times that of endowment plan)

Total Premium Paid – Rs 3.2 lac (20 years x Rs 16,000)

Maturity Amount (from term plan) – Rs 0

Maturity Amount (from equity funds – investing Rs 1.28 lacs annually) – Rs 90+ lacs

So the clear winner in case of maturity amount here is a combination of term plan + equity funds. The amount you get is more than what you would have got had you bought an endowment plan.

Also, you get a life cover that is 4 times larger than that given by the endowment plan. That too at 1/9th the premium.

What else is there to think of now?

Read the above example again (to really understand it)

Now lets come to the case of policyholder dying during the policy term.

Depending on when exactly the death happens, the amount paid to nominee will be equal to sum assured (1.25 times of SA in case of New Jeevan Anand) + accrued bonuses. This would be anywhere between Rs 31 and 60 lacs.

Compare this with term plan – death during policy term will lead to term plan paying out Rs 1 crore to the nominee. In addition, the amount that is already invested in equity funds (in previous years) will also be available for the nominee.

Again, a combination of term plan + equity funds seems to be a better choice than endowment plan.

What if we don’t invest in Equity Funds and instead choose low-risk PPF?

The benefits of term plan + PPF combination will be lower (than Term+Equity Funds) but still better than endowment plans. This is because historically, returns given by PPF are lower than those given by equity funds.

So depending on your risk profile and asset allocation requirements, you can club a term plan with either PPF or equity funds or even both!

As for tax benefits, all instruments discussed – endowment, term plan, PPF, ELSS mutual funds offer tax deductions. So not much to compare here.

But do note that the money invested in equity funds is available to you as and when you want (after 3 years in case of ELSS). But bonus accrued in endowment plans are paid only at the time of maturity (though you can take a loan against it).

What Should You Do?

  • If you have recently bought the policy (less than 3 years old), then stop paying the premiums and forget about the policy. Bear the losses. Switch to Term Plan + Equity MF / PPF mode. It will work out better in the long term.
  • If your traditional policy has completed 3 or more years, make them paid up or surrender them. Take the surrender money and invest it elsewhere. Buy a large term plan.
  • If your policy is close to maturity, then there is not much you can do. Better stick with it. And if you think that your current insurance cover (death benefits + bonus) is not adequate, then purchase additional term plans to enhance your life cover.

There will always be people who will not get convinced about the superiority of term insurance plans over traditional plans. Such people will eventually end up getting mediocre returns and inadequate life covers.

Then there are many people who do realize the mistake in having bought traditional insurance policies. But by the time they realize it, it’s already too late.

But if you are smart enough 🙂 and do understand that insurance is not an investment and its best to keep the two separate, you will know why term plans are the best option for your insurance needs.

They are cheaper, give bigger life cover, the amount invested elsewhere earns better returns and can be withdrawn in times of need (unlike the accrued bonuses of traditional endowment plans which is only available at maturity).

So is term insurance the best form of life insurance?

I think it is.

Though insurance is no alternative to investments, it must be kept separate from investments (and savings) and that is what a term insurance helps you do.

insurance investment savings

Don’t try to take sides on investment vs insurance debate. Both life insurance, as well as investments, are necessary. Just make sure you keep them separate.