Term insurance vs endowment vs ULIP: what they cost and what you actually get

For informational purposes only. Ek Crore does not recommend specific insurance products, investment strategies, or financial decisions. Insurance products are subject to terms and conditions — read the policy document carefully. Consult a IRDAI-registered financial advisor for advice specific to your situation.

When a life insurance agent or bank relationship manager proposes a policy, they typically offer one of three structures: term insurance, an endowment plan, or a Unit Linked Insurance Plan (ULIP). All three provide life cover. Beyond that, they work very differently, cost very differently, and produce very different financial outcomes over 20–30 years.

This article shows the math behind each structure at the same annual premium, so you can understand what you are actually getting before you commit.

What term insurance is: pure protection, no savings

Term insurance is the simplest form of life insurance. You pay a premium every year for a fixed policy term. If you die during the term, your nominee receives the sum assured (the cover amount). If you survive, you receive nothing — there is no maturity benefit under a standard term plan.

What this makes possible: Because the premium goes entirely toward covering the risk of death, the premium is very low relative to the cover amount. A 30-year-old non-smoker can typically get ₹1 crore in coverage for approximately ₹10,000–₹14,000 per year for a 30-year term, depending on the insurer and health condition.

What term insurance does not do: It does not build a corpus. When the policy term ends, the premiums are not returned (unless you buy a Return of Premium variant, which costs significantly more). Term insurance is protection, not an investment.

Source: Term insurance for a 30-year-old, GoDigit

What endowment insurance is: bundled protection and low-return savings

An endowment plan combines life cover with a savings component. You pay a higher premium. If you die during the policy term, your nominee receives the sum assured. If you survive to maturity, you receive the sum assured plus any bonuses the insurer has declared over the years.

The trade-off: Because the premium bundles savings and protection, the annual premium is far higher than a term plan for the same cover amount. Conversely, for the same premium, the cover amount is much lower.

What endowment returns look like in practice: Endowment plans offer guaranteed returns in the range of 4–6% Internal Rate of Return (IRR) on the total premiums paid. This is a conservative return compared to equity instruments, and the returns are largely fixed regardless of market conditions.

Source: Endowment plan comparison, Ditto Insurance

What a ULIP is: bundled protection and market-linked returns (with multiple charges)

A Unit Linked Insurance Plan (ULIP) is a life insurance product that invests part of your premium in market-linked funds (equity, debt, or balanced). If you die during the term, your nominee receives the higher of the sum assured or the fund value. At maturity, you receive the accumulated fund value.

The charges layer: ULIPs have multiple charges that reduce the amount actually invested. Key charges include:

Total annual drag from charges: approximately 1.4–2.2% annually on the fund value, depending on the plan.

Source: ULIP charges explained, Ditto Insurance

The cost-of-the-default calculation: same ₹1 lakh annual budget, three paths, 30 years

The scenario: Arun is 30, married with one child, and has ₹1,00,000 per year to allocate to life insurance and long-term savings. He wants ₹1 crore in life cover. Here is what each structure delivers:

Path A: Term insurance + equity mutual fund

• Term premium for ₹1 crore cover, 30-year term: ₹12,000/year
• Remaining for investment in an equity mutual fund SIP: ₹88,000/year = ₹7,333/month
• Assumed equity fund return: 12% per annum (illustration only)

Fund value at year 30: Using the SIP future value formula at ₹7,333/month for 360 months at 1%/month:

• ₹7,333 × ((1.01^360 – 1) / 0.01) × 1.01 = ₹7,333 × 3,532 = ₹2.59 crore

Life cover during the period: ₹1 crore throughout

Path B: Endowment plan

For ₹1,00,000/year in premium for 30 years, a typical endowment plan would provide:

• Life cover: ₹10–15 lakh (significantly lower than term)
• Maturity benefit at 4.5% IRR on premiums: ₹1,00,000 × (growth factor over 30 years)

At 4.5% IRR: ₹1,00,000/year for 30 years = approximately ₹64 lakh at maturity

Life cover during the period: ₹10–15 lakh

Path C: ULIP

For ₹1,00,000/year in a ULIP invested 100% in equity funds:

• After premium allocation charge (~3%): ₹97,000 enters the fund in year 1
• Mortality charge: ₹4,000–₹20,000/year (increasing with age)
• FMC: 1.35% annually on fund value
• Effective annual return drag from all charges: approximately 2% vs direct equity

At ~10% effective return (12% equity minus ~2% charge drag), ₹88,000/year (after mortality and admin):

Approximate fund value at maturity: ₹1.6–1.8 crore

Life cover: Typically 10× annual premium = ₹10 lakh (IRDAI minimum to qualify for tax benefit), or higher depending on design

Summary comparison:

All corpus figures are illustrations. Actual MF returns depend on market performance and are not guaranteed. Actual ULIP and endowment figures depend on the specific plan. This is an order-of-magnitude comparison, not a projection.

◇ Quick check: The primary gap between Path A and Path C is the charge structure. A 2% annual drag over 30 years at ₹88,000/year invested reduces the terminal corpus by approximately ₹60–80 lakh relative to a direct equity fund. That is the tangible cost of the bundled insurance-plus-investment structure.

Where each structure might make sense

Term insurance makes sense for most salaried employees who need life cover and have the discipline (or automated SIPs) to invest the savings component separately. The cover per rupee of premium is unmatched, and the flexibility to choose and manage investments separately generally produces better long-term outcomes.

Endowment plans may suit those who: want guaranteed returns without market risk, need a forced savings mechanism they cannot manage to enforce on their own, or have a specific goal (like a child's education) where a guaranteed maturity benefit is more important than maximising the corpus. The returns are predictable, even if they are modest.

ULIPs may suit those who: want to combine insurance and equity exposure in a single product, are comfortable with the 5-year lock-in period, and are in a high tax bracket where the tax-free maturity benefit (for premiums under ₹2.5L/year) is meaningful. Newer ULIPs with lower charges have narrowed the gap with direct mutual funds, though direct mutual funds still generally offer lower costs.

⚠ Common mistake: Buying an endowment plan or ULIP as the primary savings vehicle because an agent or bank relationship manager framed it as "insurance plus investment, so you get the best of both." The bundling typically delivers less insurance than a term plan and less return than a direct investment — the trade-off is the convenience of a single product, not superior outcomes on either dimension.

Tax treatment: what changed with Budget 2023

Term insurance: Death benefit paid to the nominee is tax-free under Section 10(10D) of the Income Tax Act, 1961. The annual premium is deductible under Section 80C up to ₹1.5L under the old tax regime. Under the new regime, 80C deductions are not available.

Endowment insurance: Maturity proceeds are tax-free under Section 10(10D) provided the annual premium does not exceed 10% of the sum assured. If the premium exceeds that threshold, the maturity is taxable.

ULIP maturity: If the annual premium is ₹2.5 lakh or less, the maturity proceeds are tax-free under Section 10(10D). If the annual premium exceeds ₹2.5 lakh (Budget 2023 change effective from 1 February 2021 onwards), the maturity proceeds are taxable as capital gains.

Source: Section 10(10D), Income Tax Act — verify at incometax.gov.in

Bottom line

• Term insurance gives the most life cover per rupee of premium: approximately ₹1 crore cover for ₹10,000–₹14,000/year at age 30
• Endowment plans combine insurance with guaranteed but low returns (4–6% IRR); the life cover is much smaller than term for the same premium
• ULIPs combine insurance with market-linked returns, but multiple charge layers reduce effective returns by 1.4–2.2% annually
• At the same annual budget, term + equity mutual fund typically produces 3–4× more corpus at the 30-year mark vs endowment, and 1.4–1.6× vs ULIP (all figures are illustrations)
• Endowment and ULIP may suit specific situations (guaranteed returns preference, forced savings, tax on ULIP maturity below ₹2.5L); the math should drive the decision, not the agent's presentation

Frequently asked questions

Q: I already have an endowment plan I bought 5 years ago. Should I surrender it?

A: Surrendering early attracts surrender charges (typically significant in the first 3 years, tapering thereafter). Calculate the surrender value versus continuing to maturity. If surrendering and reinvesting the proceeds in a term plan plus direct MF produces meaningfully better outcomes over the remaining years, that is worth evaluating with a CA or fee-only advisor. This is a specific decision that depends on your plan's exact surrender value and projected maturity amount.

Q: How much life cover do I actually need?

A: A common rule of thumb is 10–15 times your annual income. On a ₹10 lakh annual income, that is ₹1–1.5 crore in cover. The actual amount depends on your liabilities (home loan outstanding), number of dependents, and how many years of income replacement your family would need. A fee-only insurance advisor or online needs-analysis calculator can help you arrive at a specific figure.

Q: Is a Return of Premium (ROP) term plan worth it?

A: ROP term plans return the total premiums paid if you survive the policy term. The premium is significantly higher — typically 2–3× the regular term premium. The extra premium you pay is essentially a forced savings vehicle earning a very low implicit return. In most cases, you are better off buying a standard term plan and investing the premium difference.

Q: My employer provides group life insurance. Do I still need a term plan?

A: Employer group insurance is typically 2–5× annual salary — often insufficient for a salaried employee with a home loan and dependents. More importantly, employer group cover ceases when you change jobs, which can leave you uninsured during a gap period. A personal term plan is yours regardless of employment. The general guidance is to have personal cover independent of your employer.

Q: Are ULIP charges the same across all plans?

A: No. Charges vary significantly across insurers and plans. IRDAI caps the fund management charge at 1.35% p.a., but the total charge burden varies based on premium allocation charges, mortality charges (which depend on your age and sum assured), and administration charges. Compare the "reduction in yield" figure — some ULIPs now publish this clearly — which shows the annual return drag from all charges combined.

Sources: Term insurance for 30-year-old, GoDigit · Endowment plans explained, Ditto Insurance · ULIP charges, Ditto Insurance · ULIP charges, HDFC Life

Last verified: May 2026. Insurance product terms, charges, and tax treatment are subject to change. Verify current rules at irdai.gov.in and incometax.gov.in before making decisions.