Let's compare rounded-off figures of these plain vanilla plans taken by a 40-year old:-
(A) 50-lakh Unit-Linked Insurance Plan (ULIP) of 20 years (max. allowed).
(B) 50-lakh Term Plan of 30 years (max. allowed) - Mutual Fund (MF) combo.
(A) 50-lakh Unit-Linked Insurance Plan (ULIP) of 20 years (max. allowed).
(B) 50-lakh Term Plan of 30 years (max. allowed) - Mutual Fund (MF) combo.
(A) Ulip:-
1. He pays annual premium of 5 lakh for 10 years.
2. He earns 2.5 crores after 20 years of his survival (Ulip value @10% pa return).
3. Upon unfortunate death after 5, 10 or 15 years, his family gets 50 lakh, 80 lakh or 1.5 crore respectively (death benefit + Ulip value).
1. He pays annual premium of 5 lakh for 10 years.
2. He earns 2.5 crores after 20 years of his survival (Ulip value @10% pa return).
3. Upon unfortunate death after 5, 10 or 15 years, his family gets 50 lakh, 80 lakh or 1.5 crore respectively (death benefit + Ulip value).
(B) Term Plan + MF combine:-
1. He pays annual premium of 12,000 for 30 years.
2. He invests the annually saved amount of 4.8 lakh in monthly Systematic Investment Plan (SIP) of 40,000 in a MF @10%pa return.
3. He earns 3 crores or 9 crores after 20 years or 30 years of his survival (MF value).
4. Upon unfortunate death after 5, 10 or 15 years, his family gets 80 lakh, 1.3 crore or 2.1 crore respectively (term plan benefit + MF value).
1. He pays annual premium of 12,000 for 30 years.
2. He invests the annually saved amount of 4.8 lakh in monthly Systematic Investment Plan (SIP) of 40,000 in a MF @10%pa return.
3. He earns 3 crores or 9 crores after 20 years or 30 years of his survival (MF value).
4. Upon unfortunate death after 5, 10 or 15 years, his family gets 80 lakh, 1.3 crore or 2.1 crore respectively (term plan benefit + MF value).
(C) Term Plan-MF combo score in terms of:-
1. Flexibility in deciding your insurance cover
2. Liquidity in corpus withdrawal
3. Mortality charge of insurance cover
4. Overall fund management charges
5. Higher premature death benefits
1. Flexibility in deciding your insurance cover
2. Liquidity in corpus withdrawal
3. Mortality charge of insurance cover
4. Overall fund management charges
5. Higher premature death benefits
(D) In the above scenario, the only advantage which ULIP purportedly has is Sec 80C tax benefit on its premium, which can be easily matched by combining the Term Plan with an Equity-Linked Saving Scheme (ELSS) equity mutual fund which offers the same tax benefit.
(E) After retirement, a regular monthly income stream of 2.4 lakh or 7.2 lakh can be generated through Systematic Transfer Plan (STP) of the mutual fund corpus, without LTCG tax, from this MF corpus of 3 crore or 9 crore respectively,for 30 years, suiting your monthly expenses, while letting the corpus continue to grow by the power of compounding, and with MF corpus intact too till the end for enabling a healthy bequeathal.
(F) It would be best to leave out Endowment insurance plans as unworthy of any fruitful comparison.