Last Updated on April 24, 2026 by teamtfl
The post that originally sat at this URL was a request to readers to share a review of LIC Samridhi Plus. That product was discontinued years ago.
But the two reader comments it generated in 2011 were genuinely insightful – and they capture a debate that is still very much alive in 2026. I want to use this space to settle it properly.
Naresh wrote: “One should buy term insurance only as per requirements. For investments, there are mutual funds, equity, and debt to choose from.”
Sanket wrote: “I am an LIC agent myself but have been advising people against buying ULIPs. I have burnt my own hands buying ULIPs. Only after I became an agent did I understand how I was at a loss. One would rather invest in MFs for growth and term plans for risk cover.”
An LIC agent telling clients to avoid ULIPs. That is how obvious this should be.
Quick Answer
ULIPs mix insurance and investment in a structure where neither is done well. The insurance cover is inadequate for the premium paid. The investment returns are dragged down by multiple charges (premium allocation, policy administration, fund management, mortality). Term plan plus mutual fund almost always beats a ULIP on every dimension – coverage, returns, flexibility, and liquidity. The only exception is if you need forced savings and cannot maintain separate investments independently.
Why mixing insurance and investment is almost always a bad idea
The argument for products like ULIPs and endowment plans is emotional: “You get insurance AND investment in one.” This sounds like more value. It is not.
Insurance and investment are fundamentally different purposes. Insurance is about replacing lost income for dependents if you die young. The best insurance is pure risk cover – maximum sum assured for minimum premium. Investment is about growing wealth for your goals. The best investment is the one with the highest risk-adjusted return for your timeline.
When you combine them, you compromise both:
The insurance is weak: A Rs.10 lakh premium in a ULIP buys you a Rs.10 to 15 lakh sum assured (sometimes just 10x annual premium). The same Rs.10 lakh in a term plan at age 35 buys you Rs.1.5 to 2 crore sum assured. The ULIP provides 10% of the life cover at the same premium.
The investment is expensive: ULIPs carry 4 to 7 separate charges in the early years – premium allocation charge (1 to 5%), fund management charge (1.35%), policy administration charge, mortality charge, partial withdrawal charges. These charges compound negatively and can consume 20 to 35% of your premium in the first 5 years. A mutual fund’s total expense ratio is 0.5 to 1.5% per year – nothing else.
The honest ULIP vs term+MF comparison
Let us run the numbers for a 35-year-old with a 20-year horizon investing Rs.1 lakh per year:
ULIP option: Rs.1 lakh premium. After charges of approximately 2 to 3% annually (improving with newer ULIPs), assume a post-charge CAGR of 10%. After 20 years: approximately Rs.50 to 55 lakh. Life cover: Rs.10 lakh.
Term + MF option: Rs.12,000 term plan premium for Rs.1.5 crore cover. Rs.88,000 invested in equity mutual funds at 12% CAGR after 1.5% expense ratio (net 12%). After 20 years: approximately Rs.71 to 75 lakh. Life cover: Rs.1.5 crore.
The term+MF option delivers approximately 30 to 40% more corpus AND 15x more life cover for the same annual outflow.
This is not a close call. This is the reason Sanket, the LIC agent, told clients not to buy ULIPs even while selling them.
When might a ULIP still make sense?
I want to be fair. There are a few genuine use cases:
Forced savings with no discipline: If someone genuinely cannot maintain separate investments and will cash out a mutual fund at the first opportunity, the surrender charges of a ULIP can serve as a behavioural lock-in. This is a reasonable argument, but it is an admission of a discipline problem rather than a product advantage.
Newer, low-charge ULIPs post-IRDAI reforms: IRDAI significantly clamped down on ULIP charges in 2010 and further in subsequent years. Some current ULIPs from established insurers have total charges below 2% annually after 5 to 7 years – which is closer to mutual fund territory. If you are being sold a ULIP, ask for the exact charge structure in writing before signing.
Estate planning in specific situations: In some NRI or high-net-worth situations, the ULIP’s structure (sum assured paid directly to nominee, outside probate) has estate planning advantages. This is a specialist use case, not a general recommendation.
The LIC endowment question
Everything I have said about ULIPs applies with even more force to traditional endowment plans – LIC Jeevan Anand, LIC Jeevan Lakshya, and their equivalents. These are non-market-linked products where your money earns approximately 4 to 6% internal rate of return over 20 to 25 years. With inflation at 5 to 6%, your real return is barely positive or negative.
If you hold existing LIC endowment policies: calculate the actual IRR using a present value calculator before surrendering. Surrendering after 10 to 15 years may not be worth it due to surrender penalties. Keep paying if the policy is near maturity. But never buy a new one.
Also read: Returns Cannot Be Your Goals – Why Product Selection Matters Less Than You Think
Do you have ULIPs or endowment policies you are unsure about?
The decision to continue, surrender, or paid-up an existing insurance-cum-investment policy depends on the specific terms, your age, and how many years remain. We do this analysis as part of our financial planning process – helping you understand what to keep and what to replace.
Frequently asked questions
Is a ULIP better than a mutual fund?
For most investors, no. A ULIP carries multiple charges – premium allocation, mortality, fund management, policy administration – that significantly reduce net returns, particularly in the early years. A mutual fund’s total expense ratio is lower and more transparent. The combination of a term plan (for risk cover) and mutual fund (for investment) almost always delivers better outcomes than a ULIP for the same premium outflow, except in specific edge cases involving forced savings behaviour or estate planning needs.
Should I surrender my existing ULIP?
It depends on how long you have held it, what the surrender value is, and how many years remain. Surrendering in the first 5 years typically results in heavy losses due to front-loaded charges. After 5 years (the mandatory lock-in), calculate the internal rate of return you have earned so far and compare it to what you could earn with the surrender proceeds invested elsewhere after tax. If the remaining policy years are few and the charges are now low, continuing to maturity may be better. Get a specific analysis before deciding.
Are endowment plans a good investment?
No, for the purpose of wealth creation. Traditional endowment plans from LIC and other insurers typically deliver 4 to 6% internal rate of return over their tenure. With inflation at 5 to 7%, the real return is negligible or negative. The guaranteed return and bonus feel attractive but compound slowly. The same premium split into a term plan and equity mutual fund delivers significantly more both on the insurance coverage and the investment corpus. Endowments are appropriate only if you want an absolute capital guarantee with zero equity exposure and have no interest in maximising returns.
Do you have a ULIP or endowment policy you are unsure about? Share the situation in the comments – the more specific you are, the more useful the discussion becomes.
Hemant sir,
i m thinking about investment in LIC jeevan saral
pl. tell me merits and demerits about LIC jeevan saral plan. i m waiting about your valuable comments.
Thanks Hemant for the suggestion. was thinking of investing in samridhi plus
🙂
Hi hemant
I was thinking to invest in samrudhi plus, thank god ur views heped me a lot…
sabarish
Welcome Sabareesh 🙂
Hi Hemant,
As usual,this article is also an eye-opener for many of us.
I am 100% agree with you that,
“Only smart people’s are reading TFL” & getting smater everyday.
“sidharth”
Thanks Sidharth 🙂