HaatBeatBeyond the numbers
The maths shows one side. These are the things only you can weigh.
- Enough cover comes firstWhichever route you choose, the life cover should match what your family would need. The savings question comes second.
- Built-in disciplineA policy commits you to saving every year. Some people value that structure; investing separately takes the discipline to keep going.
- Access to your moneyInvested money can usually be reached if life changes. Policy money is often locked in until maturity, and leaving early can be costly.
- Comfort with market swingsInvestments rise and fall; a policy's guaranteed part does not. How much uncertainty feels right is personal.
- Long commitmentsA 20-year premium is a long promise. Make sure it still fits if income or plans change.
- Talking it throughBig, long-term choices are easier when the family understands them, including where the policy papers are and how a claim works.
How it's calculated
Premiums are paid at the start of each year. The amount not needed for the term plan is invested at your assumed return r for n years. The policy's own yearly return i is the rate that turns its premiums into the maturity amount you enter, found by search.
Assumptions
- Both routes give the same life cover during the term; the death benefit is not compared.
- The maturity amount is what the policy illustration shows; bonuses are often not guaranteed.
- Premiums are paid at the start of each year for the whole term.
- Steady investment returns; real returns vary. Surrender values, riders, taxes and charges are not included.
Worked example
A savings policy costing 1 lakh rupees a year for 20 years that shows 35 lakh rupees at maturity works out to about 5.07% a year. A term plan for the same cover at 15,000 rupees a year, with 85,000 rupees invested each year at an assumed 9%, grows to about 47.40 lakh rupees, about 12.40 lakh ahead. At a 6% return, the policy would end about 1.86 lakh rupees ahead.
Questions
What is the policy's own yearly return?
It is the steady yearly rate at which the premiums you pay would grow to the maturity amount. It makes the policy comparable with other ways of saving.
Why compare the same cover?
Because both routes must protect your family equally. Only then is the difference in money a fair comparison.
What if I stop paying the policy early?
Surrendering early often returns much less than the premiums paid. Check the surrender value table in the policy document.
Does tax change the answer?
It can. Premiums, maturity amounts and investment gains may be taxed differently where you live. Include those effects before deciding.