Vikram was proud of himself. He’d just bought a “comprehensive life insurance plan” that would give his family ₹50 lakhs if something happened to him, AND he’d get all his premiums back after 20 years. Plus returns.
His friend Ankit bought boring term insurance. Just ₹1 crore coverage. No returns. No savings. Nothing back if he survived.
“You’re just throwing money away,” Vikram told him. “At least I’m building wealth.”
Five years later, Vikram passed away in an accident.
His family received ₹50 lakhs. After taxes and loan deductions, they had about ₹42 lakhs. Sounds substantial—until you realize they still had a ₹35 lakh home loan, his daughter’s education to fund, and his wife had no income.
The money lasted three years. Then they had to sell the house.
Ankit is still alive and paying his ₹1,200/month term premium. If he dies, his family gets ₹1 crore. Enough to clear debts, fund education, and give his wife financial security for a decade.
Vikram thought he was being smart. He was actually buying peace of mind for himself, not protection for his family.
The Question Nobody Asks Correctly
Here’s how the conversation usually goes:
Insurance Agent: “Would you like term insurance or a savings plan?”
You: “What’s the difference?”
Agent: “Term insurance only pays if you die. Savings plans pay whether you live or die. Plus you get returns!”
You: “Obviously I’ll take the one where I get money either way.”
And just like that, you’ve made a ₹10-15 lakh mistake over the next 20 years.
Here’s the question you should be asking instead:
“Am I buying insurance to protect my family if I die, or am I buying it to feel good about ‘not wasting money’?”
Because term insurance and savings plans solve completely different problems. Mixing them up is like buying a sports car when you need a truck—sure, it’s nice, but it won’t do what you actually need.
What Term Insurance Actually Is (Stripped of All Marketing)
Term insurance is pure protection. Nothing else.
You pay a small premium every year. If you die during the policy term, your family gets a large payout (usually ₹50 lakhs to ₹2 crores). If you survive the term, you get nothing back.
That’s it. That’s the whole product.
No savings component. No investment returns. No maturity benefit. No cash value.
Just this simple equation: Small regular payment = Large protection for your family if you die.
Real Example:
- 30-year-old non-smoker
- ₹1 crore term coverage
- 30-year term
- Premium: ₹12,000-15,000 per year
Total paid over 30 years: ₹3.6-4.5 lakhs
Payout if you die: ₹1 crore
That’s 20-25x return for your family. In exchange for ₹1,000-1,250 per month.
Why it feels like a “waste”:
Because you’re anchored to the wrong mental model. You’re thinking: “If I survive, I paid ₹4.5 lakhs for nothing.”
But you didn’t pay for nothing. You paid for 30 years of certainty that your family would be financially secure if something happened to you.
You paid for your wife not having to leave her children to work three jobs. For your kids’ education not being compromised. For your parents not spending their retirement savings on your family’s survival.
That’s not nothing. That’s everything.
What Savings Plans Actually Are (And What They’re Not)
Savings plans (also called endowment plans, money-back plans, ULIPs) combine insurance with investment.
You pay a premium. Part goes toward life insurance coverage. Part goes toward an investment that grows over time. If you die, your family gets a payout (usually 10-20x your annual premium). If you survive, you get your money back plus returns.
Sounds perfect, right?
It’s not. Here’s why.
Real Example:
- Same 30-year-old
- ₹50 lakh coverage (not ₹1 crore—important detail)
- 20-year policy
- Premium: ₹50,000 per year
Total paid over 20 years: ₹10 lakhs
Payout if you die: ₹50 lakhs
Maturity benefit if you survive: ₹14-16 lakhs (assuming 5-6% returns)
Let’s break down what you actually got:
Insurance protection: ₹50 lakhs (half of what term insurance would give you)
Investment returns: ₹14 lakhs on ₹10 lakhs = 40% gain over 20 years = 4% annual returns
That’s terrible. Genuinely terrible.
A simple PPF account would have given you: ₹10 lakhs invested over 20 years at 7.1% = ₹21+ lakhs
A diversified mutual fund: ₹10 lakhs invested over 20 years at 12% CAGR = ₹40+ lakhs
You paid ₹50,000/year for:
- Half the insurance coverage you needed
- Returns worse than the safest government scheme
- Money locked away for 20 years with surrender penalties if you need it
But hey, at least you got your money back, right?
Wrong. You got back less money than you would have by simply investing separately. And your family was under-protected for 20 years.
The Psychological Trap That Ruins Families
Here’s the uncomfortable truth about why people choose savings plans over term insurance:
We buy insurance for ourselves, not for our families.
Let me explain.
Term insurance is purely for your family’s benefit if you die. You personally get zero benefit. That feels psychologically wrong. “I’m paying for something I’ll never use.”
Savings plans give you a benefit—you get your money back. That feels better. You’re “not wasting money.”
But here’s what’s actually happening:
You’re prioritizing your own peace of mind (“I’ll get something back”) over your family’s financial security (“they’ll have enough if I die”).
You’re choosing to feel good about your decision rather than making the decision that actually protects the people you love.
It’s not malicious. It’s just human psychology. Loss aversion is powerful. We hate the idea of “losing” premium payments, even if those payments bought something valuable (protection).
The brutal reality:
Your family doesn’t care whether you got your premiums back. They care whether they can pay the mortgage, fund education, and survive financially if you’re gone.
Term insurance does that. Savings plans mostly don’t.
The Math That Changes Everything
Let’s run the numbers on two different approaches:
Approach 1: Savings Plan
- Premium: ₹50,000/year
- Coverage: ₹50 lakhs
- Policy term: 20 years
- Total paid: ₹10 lakhs
- Maturity benefit: ₹14 lakhs (assuming 5% returns)
Approach 2: Term Insurance + Separate Investment
- Term insurance premium: ₹12,000/year for ₹1 crore coverage
- Investment in mutual funds: ₹38,000/year
- Policy term: 20 years
Total paid: ₹10 lakhs (same as savings plan)
Results:
If you die in year 10:
- Savings plan: Family gets ₹50 lakhs
- Term + investment: Family gets ₹1 crore (insurance) + ₹8 lakhs (investments) = ₹1.08 crores
Difference: ₹58 lakhs more protection
If you survive 20 years:
- Savings plan: You get ₹14 lakhs
- Term + investment: You get ₹0 (insurance expired) + ₹35 lakhs (investments at 12% CAGR) = ₹35 lakhs
Difference: ₹21 lakhs more wealth
You could have DOUBLE the insurance coverage AND 2.5x more wealth at maturity.
Or you could choose the savings plan that sounds better but performs worse on both metrics.
The Stories That Reveal the Truth
Story 1: The Under-Protected Family
Rajesh bought a savings plan. ₹60,000 annual premium. ₹40 lakh coverage.
He died when his daughter was 12. Heart attack. Completely unexpected.
₹40 lakhs sounds like a lot. Until you factor in:
- ₹15 lakh home loan (immediate payment needed)
- Daughter’s education from Class 12 to post-graduation: ₹25 lakhs over 10 years
- Living expenses for his wife who was a homemaker: ₹15,000/month = ₹18 lakhs over 10 years
Total needed: ₹58 lakhs
Insurance paid: ₹40 lakhs
Shortfall: ₹18 lakhs
His wife went back to work within six months. Not because she wanted to, but because she had no choice. His daughter went to a cheaper college, not the one she deserved.
If he’d bought ₹1 crore term insurance for the same ₹60,000/year?
His family would have had ₹85 lakhs after clearing the loan. Enough for everything.
Story 2: The Surrender Trap
Priya bought a ULIP. ₹40,000 annual premium. 15-year lock-in.
Year 8, her business hit a rough patch. She desperately needed ₹2 lakhs for working capital. She had paid ₹3.2 lakhs in premiums so far.
She surrendered the policy. Got back ₹2.4 lakhs.
Lost ₹80,000. Plus lost all insurance coverage exactly when her financial situation was shakiest.
If she’d had term insurance + mutual funds separately?
Term insurance would have continued (just ₹12,000/year). She could have redeemed her mutual funds with zero penalty and minimal tax impact.
Story 3: The Returns Disappointment
Amit bought an endowment plan 20 years ago. ₹25,000 annual premium. He was promised “attractive returns.”
Total paid: ₹5 lakhs
Maturity amount received: ₹7.8 lakhs
Actual return: 4.5% per year
Inflation over those 20 years averaged 6%. His purchasing power actually decreased.
If he’d invested that ₹5 lakhs in a simple index fund instead?
At 11% CAGR: ₹16 lakhs
At 13% CAGR: ₹20 lakhs
He lost ₹8-12 lakhs in opportunity cost by choosing a “safe” savings plan.
The Arguments Insurance Agents Use (And Why They’re Misleading)
Argument 1: “At least you get your money back with savings plans!”
Reality: You get back less than you would have by investing separately. It’s not “getting your money back”—it’s getting poor returns on your money while being under-insured.
Argument 2: “Term insurance is a waste if you survive!”
Reality: Your car insurance is also a “waste” if you don’t have an accident. That doesn’t mean you shouldn’t have it. Protection isn’t a waste. Under-protection is.
Argument 3: “Savings plans instill financial discipline!”
Reality: So do SIPs, recurring deposits, and PPF accounts—all of which give better returns with more flexibility. This is a false benefit.
Argument 4: “You get tax benefits on both premium and maturity!”
Reality: You get the same 80C tax benefits on term insurance premiums. And ELSS mutual funds also qualify for 80C with no lock-in beyond 3 years and potentially higher returns.
Argument 5: “What if you don’t die? All that term insurance money is wasted!”
Reality: This is emotionally manipulative framing. The goal isn’t to “not waste money.” The goal is to protect your family. Term insurance does that objectively better.
Argument 6: “Savings plans are safer than market investments!”
Reality: “Safer” with 4-5% returns that barely beat inflation isn’t safety—it’s slow wealth erosion. And you’re paying for that “safety” with inadequate insurance coverage.
When Savings Plans Actually Make Sense (The Rare Cases)
I’m not going to tell you savings plans are always terrible. There are narrow scenarios where they work:
Scenario 1: You Have Zero Financial Discipline
If you genuinely cannot force yourself to invest regularly, and a locked-in savings plan is the ONLY way you’ll save money, then maybe it’s worth it.
But be honest: is that really true? Or is it easier to blame yourself than to set up an automatic SIP?
Scenario 2: You’re Extremely Risk-Averse
Some people cannot emotionally handle market volatility. Even though historically diversified equity investments beat savings plans over 15+ years, some people will panic-sell during crashes.
For them, a guaranteed (though low) return might be worth the peace of mind.
But you’re still underinsured. So at minimum, buy term insurance FIRST, then add a small savings plan if you want.
Scenario 3: You’re Already Maximally Insured
If you already have ₹2-3 crore term coverage, all your loans are covered, your family’s expenses are secured, and you have additional money you want to deploy conservatively—sure, a savings plan isn’t the worst option.
But it’s still not the best. PPF, debt mutual funds, or even fixed deposits are more flexible.
The key principle:
Never sacrifice adequate insurance coverage for the psychological comfort of “getting your money back.”
What You Actually Need (The Honest Formula)
Here’s the framework for life insurance that actually protects families:
Step 1: Calculate Real Coverage Need
Formula: (Annual expenses × 10) + Outstanding loans + Children’s education + Emergency buffer
Example:
- Annual family expenses: ₹6 lakhs (₹60 lakhs needed to replace 10 years of income)
- Home loan: ₹25 lakhs
- Two kids’ education: ₹30 lakhs
- Emergency buffer: ₹10 lakhs
Total needed: ₹1.25 crores
Not ₹20 lakhs. Not ₹50 lakhs. ₹1.25 crores.
Step 2: Buy Pure Term Insurance for This Amount
₹1.25 crore term coverage for a 30-year-old: ₹18,000-22,000 per year.
That’s ₹1,500-1,800 per month to ensure your family never faces financial hardship.
Step 3: Invest the Rest Separately
Whatever you would have paid for a savings plan minus the term premium = invest this in proper instruments.
- Emergency fund: 6 months expenses in savings account/liquid fund
- Medium-term goals (5-10 years): Debt funds, PPF, balanced funds
- Long-term wealth (10+ years): Equity mutual funds, index funds
Step 4: Review Annually
Life changes. Income increases. New loans. More kids. Parents’ medical needs.
Your coverage should increase as your responsibilities increase.
This approach gives you: ✓ Maximum protection when needed
✓ Flexibility to access your investments
✓ Better returns on your savings
✓ Lower total cost
✓ Simpler financial planning
The Tough Conversation You Need to Have
Sit with your spouse. Ask these questions honestly:
“If I died tomorrow, would our current life insurance be enough?”
Not “seems like a lot.” Not “should be fine.” Enough.
Enough to:
- Clear all loans immediately
- Maintain current lifestyle for 10+ years
- Fund children’s complete education
- Cover medical expenses for parents
- Provide a buffer for emergencies
“Are we prioritizing my peace of mind over your actual security?”
Am I buying a savings plan because it makes ME feel good about not “wasting” money?
Or am I buying term insurance because it actually protects YOU adequately?
“If something happened to me, would you have to compromise on anything?”
Would the kids have to change schools? Would you have to move to a smaller house? Would you have to ask family for money?
If the answer is yes, you’re under-insured.
“Am I confusing insurance with investment?”
Insurance should protect against catastrophic financial loss.
Investment should grow wealth over time.
These are different goals. Mixing them compromises both.
What to Do If You Already Have a Savings Plan
Option 1: Check Your Coverage
If you have ₹50 lakhs coverage and actually need ₹1 crore, you’re ₹50 lakhs short.
Buy additional term insurance to cover the gap. Don’t cancel the savings plan yet—just supplement it.
Option 2: Evaluate Surrender Value
If you’re within the first 3-4 years, surrender value will be terrible. You’ll lose 30-50% of premiums paid.
Run the math: Is it worth losing that money to redirect to better insurance + investment? Sometimes yes, often no.
Option 3: Make It Paid-Up
Stop paying premiums. The policy becomes paid-up with reduced coverage, but you don’t lose everything.
Use the freed-up premium money for term insurance + proper investments.
Option 4: Ride It Out + Don’t Repeat the Mistake
If you’re 15 years into a 20-year policy, just finish it. You’ve already paid the high initial costs.
But don’t renew, don’t buy another one, and make sure you have adequate term coverage separately.
The key principle:
Don’t throw good money after bad. But also don’t panic-surrender and lose money unnecessarily. Evaluate based on your specific situation.
The Industry Secret Nobody Tells You
Here’s why insurance agents push savings plans over term insurance:
Commission on ₹1 crore term policy (₹12,000 annual premium):
First year: ₹3,000-4,000
Renewal years: ₹500-800
Commission on ₹50 lakh savings plan (₹50,000 annual premium):
First year: ₹15,000-20,000
Renewal years: ₹2,500-3,000
The agent makes 5-6x more commission by selling you a savings plan.
Even though term insurance protects your family better. Even though you’d be better off with term + separate investment.
The agent’s incentive is to maximize their commission. Your incentive is to maximize your family’s protection.
These are opposite goals.
This is why the agent never leads with “Here’s what coverage you actually need.” They lead with “Here’s a plan where you get your money back!”
You’re not getting unbiased advice. You’re getting a sales pitch optimized for their commission.
Once you understand this, the whole game changes.
The Bottom Line (What Actually Protects Families)
Term insurance protects families.
Savings plans make buyers feel good.
These are not the same thing.
If you die tomorrow:
- Your family doesn’t care whether you got your premiums back
- They care whether they can survive financially
- They care whether they have to change their entire life
- They care whether dreams get abandoned due to money
Term insurance ensures they don’t have to care about money while they’re grieving.
Savings plans usually don’t provide enough coverage for that.
The choice is simple:
Do you want adequate protection? Buy term insurance.
Do you want to feel like you’re not “wasting money”? Buy a savings plan.
Do you want both adequate protection AND good returns? Buy term insurance + invest separately.
The math is clear. The logic is clear. The only thing standing in the way is the psychological need to “get something back.”
But here’s the thing:
You’re not buying life insurance for yourself. You’re buying it for the people who depend on you.
And they need protection more than they need you to feel good about your financial decisions.
Term insurance isn’t exciting. It doesn’t promise returns. It doesn’t make you feel smart. But it’s the only thing that actually protects your family if you’re not there to do it yourself.
Everything else is just expensive peace of mind—for you, not for them.
What type of life insurance do you have? When’s the last time you checked if your coverage is actually enough? Maybe it’s time to find out. FOLLOW FOR MORE...
