LIC Endowment vs Mutual Fund — The Honest 20-Year Comparison

## The endowment policy return problem A typical LIC endowment policy: ₹50,000/year for 20 years → ₹15 lakh at maturity. Total invested: ₹10 lakh over 20 years. Effective CAGR: approximately 4.5–5%. Compare: FD at 7%, PPF at 7.1%, ELSS at 10–13%. The policy barely beats inflation. In real terms, you have barely grown your wealth. ## Why these policies persist 1. **Mis-selling**: Agents earn 20–35% commission on year 1 premium. The incentive is to sell the most expensive policy. 2. **Bundling confusion**: People think insurance + investment together is more efficient. The opposite is true — doing both badly is worse than doing each separately. 3. **Social proof**: "My parents had LIC and it paid for my education." It did — but an ELSS SIP would have paid for 3 educations. 4. **Inertia and guilt**: "I've already paid for 8 years — I can't stop now." This is sunk cost fallacy. ## The IRR test Calculate the effective IRR of any insurance policy you own: - If IRR < 6%: surrender (if past lock-in) and redirect - If IRR 6–7%: acceptable but not great; continue if close to maturity - If IRR > 7%: likely close enough to an FD that continuing makes sense ## What to do with the surrender value If you surrender an old policy: 1. Invest surrender value in liquid fund immediately (don't let it sit idle) 2. Set up ELSS + large-cap SIP for equity exposure 3. Buy term insurance to replace the insurance component (it'll be much cheaper)