Dear Reader,

Every year, millions of Indians buy ULIPs believing they’re making a smart move — getting insurance protection and investment growth in one shot. On paper, it sounds ideal: kill two birds with one stone.

But the truth is far less perfect. Unit Linked Insurance Plans (ULIPs) and traditional endowment policies often fail at both jobs. They neither provide adequate life coverage nor deliver competitive returns. The result? Families are left financially exposed, while believing they’re fully protected.

In this edition of Perspective, we unpack why combining insurance and investment almost never works — and what smarter alternatives exist.

💡 Insurance Should Insure — Not Invest

Recently, Sanjiv Bajaj, Joint CMD of Bajaj Capital, reignited the debate by arguing on LinkedIn that term insurance “isn’t suitable for the masses.” According to him, most Indians need bundled solutions that combine protection and savings, since they can’t afford to separate the two.

It’s a view that seems practical — until you look at the math.

If millions of households end up underinsured and under-invested, then these products aren’t solving affordability — they’re amplifying financial vulnerability. The goal of insurance is to protect income, not to generate subpar returns.

📉 What ULIPs Actually Deliver

A closer look reveals the cracks.
Most ULIPs and endowment policies yield 6–7% per year, before policy-level deductions. Once you account for inflation (~5–6%) and internal charges, the real return barely touches 1–2% — sometimes even less.

And these aren’t just one-off charges. ULIPs come with:

• Policy administration fees

• Fund management charges

• Mortality and allocation costs

• Exit penalties

After all deductions, your ₹25,000 annual premium might grow slower than a basic mutual fund SIP or even a PPF account.

⚠️ The Protection Gap: Too Little, Too Late

Let’s take a real-world example.

Ramesh, a 35-year-old engineer, bought a ULIP ten years ago. He paid ₹25,000 annually, assuming it would secure his family.
When he reviewed his policy, he found his life cover was just ₹10 lakh — and his fund value after a decade was ₹3.2 lakh.

If Ramesh had opted for a term plan, the same ₹25,000 could have given his family ₹1 crore in life cover — providing real security in case of an emergency.

The difference isn’t small; it’s the difference between survival and struggle.

📊 Comparison: ULIPs vs Term Insurance

It’s clear that bundled products underperform on both fronts — they don’t protect well, and they don’t grow wealth effectively.

💭 Why Term Insurance Is for Everyone

The claim that “term insurance isn’t for the masses” misses the point.

In fact, the masses need it the most. Wealthy individuals may survive with inadequate cover, but for middle-class families, the death of the breadwinner can instantly destroy financial stability.

Term insurance offers:

• Maximum protection for minimum cost

• Simple, transparent structure

• No hidden investment risk

It’s not about “Western” financial logic — it’s about basic arithmetic. A ₹1 crore shortfall in Mumbai hurts the same as a $100,000 shortfall in Manhattan.

🏛️ LIC and the Trust Paradox

For decades, LIC (Life Insurance Corporation of India) has been the gold standard of trust in Indian finance. For many, their first financial product was an LIC policy.

But trust carries responsibility.
Instead of pushing complex, high-cost endowment plans, LIC could leverage its brand power to offer affordable term insurance at scale. With digital payment systems and Aadhaar-based onboarding, the infrastructure already exists.

A simple ₹1,000 per month term plan can safeguard a family’s future far more effectively than an opaque ULIP ever could.

🧩 The Real Problem: Misaligned Incentives

The challenge isn’t bad intent — it’s bad incentives.

Selling ULIPs and endowment plans is far more profitable for agents and insurers:

• High first-year commissions (up to 30%)

• Low transparency, high customer lock-in

• Recurring charges that keep margins strong

By contrast, term insurance offers minimal commissions — making it less attractive to sell, despite being the most beneficial for customers.

This structural misalignment means the industry naturally gravitates towards products that benefit distributors, not policyholders.

✅ The Smarter Approach: Separate Protection and Investment

The solution isn’t complicated — it’s just under-promoted.

1. Buy term insurance first.
   Ensure your family’s financial stability in case of unforeseen loss.

2. Invest separately in transparent, low-cost instruments like:

   • Mutual funds (for growth)

   • PPF/NPS (for long-term safety)

   • ETFs (for diversification)

This approach gives you control, flexibility, and better long-term returns — without compromising your family’s protection.

🔔 The Bottom Line

The purpose of insurance is protection, not profit.
When we mix insurance and investment, both goals suffer — returns stay mediocre, and coverage stays inadequate.

A disciplined separation of the two creates a stronger, more resilient financial foundation.

Insure to protect. Invest to grow. Don’t mix the two.

That’s not Western advice — it’s just financial common sense.

🧭 Action Step

If you currently hold a ULIP or endowment plan:

• Review your coverage amount and real returns.

• If it falls short, consider switching to a pure term plan and reallocate your savings into transparent, flexible investments.

Your future self — and your family — will thank you.