For decades, LIC has been the go-to name in Indian households when it comes to securing the future. “LIC kara liya?” is often the first financial question relatives ask. But here’s a hard truth many Indians are slowly waking up to:
Traditional LIC policies may be giving you neither adequate insurance nor sufficient investment returns.
In an era where inflation is rising and goals like retirement, education, and healthcare are getting costlier, relying solely on LIC policies might leave you underinsured and underfunded.
Let’s break this down with clarity — and a better alternative.
The Problem: Mixing Insurance with Investment
Most LIC policies are endowment plans or money-back plans. They give:
- Some insurance coverage (sum assured)
- Some returns (bonus + guaranteed additions)
But the catch is: both are often too low.
Let’s say you pay ₹50,000 annually for 20 years in an LIC endowment policy. At the end of 20 years, you may get ₹14–16 lakhs, including bonus. That sounds decent — until you realise the effective return is just 5–6%, barely beating inflation.
Meanwhile, the life cover (insurance) in such policies is often 10–15 lakhs — woefully insufficient for your family’s needs in case something happens to you.
Let’s Compare: LIC vs Term Insurance + Mutual Funds
| Aspect | LIC Endowment Plan | Term Insurance + Mutual Funds |
|---|---|---|
| Insurance Cover | ₹10–15 lakhs | ₹1 crore (term plan) |
| Investment Returns | ~5–6% (low) | ~10–12% (mutual funds) |
| Liquidity | Locked for 10–20 years | Partial liquidity via funds |
| Transparency | Low | High (you see NAVs, fees) |
| Tax Benefit (80C) | Yes | Yes for both |
| Total Cost | ₹50,000/year | ₹5,000/year (term) + ₹45,000 SIP |
For the same ₹50,000 per year, you can:
- Get ₹1 crore of pure term insurance for ₹5,000/year
- Invest ₹45,000/year in a mutual fund SIP which could grow to ₹30+ lakhs in 20 years
Example: 20-Year Wealth Comparison
| Plan | Final Corpus (after 20 years) |
|---|---|
| LIC Endowment Policy | ₹14–16 lakhs |
| Term Insurance + Mutual Fund SIP | ₹30+ lakhs + ₹1 crore cover |
And here’s the kicker: If nothing happens to you (hopefully), the LIC plan gives you a small corpus. But with term + mutual fund combo, you get a bigger corpus and still had full protection all these years.
Why This Works
✔️ Term Insurance:
- Gives high cover for a low premium
- Pure protection — no savings, no investment
- Ideal for securing your family’s future
✔️ Mutual Funds (via SIP):
- Long-term returns ~12% (in equity funds)
- Power of compounding + flexibility
- Suitable for goals like retirement, education, wealth building
Why People Stick to LIC
- “LIC is safe”: True — but so are many other modern options
- “Parents had it”: Yes, but times and costs have changed
- “Returns are guaranteed”: But they’re too low to meet modern goals
- “Agent said it’s good”: Agents often push policies with higher commissions, not necessarily better outcomes for you
What Should You Do?
- Calculate your insurance needs: Typically 10–15 times your annual income.
- Buy a pure term insurance plan: From LIC or other trusted insurers like HDFC, ICICI, Tata AIA, etc.
- Start a mutual fund SIP: Use platforms like Zerodha Coin, Groww, or Kuvera.
- Review old LIC policies: Don’t cancel them blindly. Assess surrender value, paid-up options, and reinvest wisely.
- Don’t mix insurance and investment again.
Final Takeaway
LIC policies aren’t bad — they’re just not enough for modern financial goals.
If your goal is to protect your family and build wealth, the smarter route today is clear:
Term insurance + Mutual Fund SIP = Complete Protection + Powerful Growth.
