Term vs Endowment vs ULIP: Which Life Insurance Wins?

If your main goal is to protect your family's income, term insurance wins clearly: as of October 2026 a healthy 30-year-old can typically buy ₹1 crore of term cover for roughly ₹12,000 to ₹15,000 a year, while the same premium in an endowment plan buys cover of only a few lakh rupees. Endowment plans and ULIPs bundle saving with insurance, which lowers the cover and, in the case of endowment plans, often delivers returns of around 4 to 6% a year. This guide compares the three on cover per rupee, the true return and the charges.

If you have not yet worked out how much cover you need, start with how much term insurance cover you need. This article is about which product type to buy.

The three products in one table

All figures as of October 2026. Premium examples are illustrative and vary by insurer, age, health and smoking status.

Measure 1: cover per rupee of premium

The simplest way to compare is to divide the sum assured by the annual premium.

• Term: ₹1 crore cover for about ₹13,000 a year means roughly ₹770 of cover per ₹1 of premium.
• Endowment: ₹5 lakh cover for ₹50,000 a year means ₹10 of cover per ₹1.
• ULIP: At the minimum 10 × annual premium, also about ₹10 of cover per ₹1.

That gap of more than 70 times is why a family relying only on an endowment or ULIP is usually badly underinsured: ₹1.5 crore of endowment cover would cost around ₹15 lakh a year.

Two points make term even cheaper today. Since 22 September 2025, individual life insurance premiums, including term, are exempt from GST. And in the old tax regime, premiums for all three products can count towards the ₹1.5 lakh limit of old Section 80C, now Section 123 of the Income-tax Act, 2025, subject to the premium being within the prescribed share of the sum assured. In the new regime there is no deduction for any of them.

Measure 2: the real return of an endowment plan

Endowment brochures show a large maturity amount, but what matters is the internal rate of return (IRR): the annual return that makes your premiums grow into the maturity value.

Worked example (illustrative)

A 30-year-old pays ₹50,000 at the start of each year for 20 years (₹10 lakh in total) into an endowment plan with a ₹5 lakh sum assured. The illustrated maturity value at the end of year 20 is ₹15 lakh.

• Total paid: ₹50,000 × 20 = ₹10 lakh.
• Gain: ₹5 lakh over 20 years.
• IRR: about 3.7% a year. At that rate, ₹50,000 a year at the start of each year grows to ₹50,000 × [(1.037^20 − 1) / 0.037] × 1.037 ≈ ₹15 lakh.

If the illustrated maturity were ₹14 lakh, the IRR would drop to about 3.1%. Compare that with PPF at 7.1% (October-December 2026 quarter) or long-term inflation of around 5-6%. A 3-4% return loses purchasing power after inflation.

How to check any plan's IRR

IRDAI requires insurers to give a benefit illustration showing outcomes at assumed investment returns of 4% and 8% a year. For participating plans, bonuses beyond the guaranteed part are not promised. To judge a plan:

1. Take only the guaranteed maturity and survival benefits.
2. List each premium with its year and each payout with its year.
3. Use a spreadsheet's XIRR or IRR function on these cash flows.

If the guaranteed IRR is below what a PPF or a bank FD offers, you are paying for cover you could buy far cheaper.

Surrender rules after 2024

IRDAI's master circular on life insurance products (June 2024) requires insurers to pay a special surrender value once one full year's premium has been paid, for policies sold from 1 October 2024. Earlier, surrendering in the first two or three years could mean getting almost nothing back. You still usually receive much less than you paid in the early years, so exiting is expensive even if it is no longer a total loss.

Measure 3: ULIP charges and tax

A ULIP invests your premium in equity, debt or balanced funds after deducting charges:

IRDAI also caps the overall reduction in yield (the gap between the gross fund return and your net return) for long-term ULIPs; regulator norms have set this at about 2.25% for policies longer than 10 years at maturity. Newer online ULIPs often charge less than the cap.

ULIP worked example (illustrative)

The same ₹50,000 a year for 20 years in a ULIP equity fund earning a gross 10% a year:

• With no charges: about ₹31.5 lakh.
• With a 2.25% reduction in yield (net 7.75%): about ₹24 lakh.

Charges cost about ₹7.5 lakh here. A low-cost online ULIP with a smaller reduction in yield would land somewhere in between, which is why the charge structure matters more than the brochure's fund names.

ULIP tax as of October 2026

• Maturity is tax-free under the old Section 10(10D) rules (carried into the Income-tax Act, 2025) only if the aggregate annual premium on ULIPs issued after 1 February 2021 does not exceed ₹2.5 lakh, and the sum assured is at least 10 times the annual premium.
• If a ULIP fails these conditions, Budget 2025 confirmed it is treated as a capital asset. Gains on an equity-oriented ULIP held over 12 months are taxed at 12.5% above the ₹1.25 lakh yearly exemption for equity long-term gains, like equity mutual funds. See capital gains tax on mutual funds for how those rates work.
• For traditional (non-ULIP) policies issued from 1 April 2023, maturity proceeds are taxable if the aggregate annual premium exceeds ₹5 lakh.
• Death benefits paid to the nominee remain tax-free.

Buy term and invest the rest: the numbers

Return to our 30-year-old with ₹50,000 a year to spend for 20 years.

The math for the third row: ₹37,000 × [(1.07^20 − 1) / 0.07] × 1.07 ≈ ₹16.2 lakh. Even at a conservative 7%, the term-plus-investment route matches the endowment's maturity while giving 20 times the cover. You can run your own numbers with our SIP calculator.

The ULIP can look competitive on fund value if markets do well, but it still gives only ₹5 lakh of protection, and you are locked in for five years.

When endowment or ULIP may still make sense

These products are not always wrong; they solve different problems:

• Forced discipline: Someone who will genuinely not invest unless it is a fixed premium may value an endowment's compulsion, while accepting the low return.
• Guaranteed non-par plans: Some non-participating savings plans offer a guaranteed IRR closer to 5-6%. Compare that with a tax-free option like PPF before buying.
• Large tax-free maturity within limits: Under the old regime, a ULIP with annual premium under ₹2.5 lakh can give tax-free maturity, which can suit long-horizon investors who compare charges carefully.
• Existing policies: If you already hold an endowment plan for many years, surrender may not be best. Compare the paid-up value and surrender value with continuing.

What none of them should do is replace adequate term cover. If you also want protection against disability, see personal accident vs term insurance.

Mistakes to avoid

1. Buying an endowment as your only life cover. The sum assured is usually far too small.
2. Looking at maturity amount, not IRR. A large rupee figure can hide a 3-4% return.
3. Counting non-guaranteed bonuses as certain.
4. Stopping a ULIP in year two. Your money sits in the discontinued fund until year five.

Free-look and complaints

You get a free-look period of 30 days from receiving the policy document to cancel and get a refund of premium, minus proportionate risk premium, stamp duty and medical costs, as of October 2026. If you were mis-sold, complain first to the insurer's Grievance Redressal Officer. If unresolved, escalate through IRDAI's Bima Bharosa portal (bimabharosa.irdai.gov.in, toll-free 155255) and then to the Insurance Ombudsman (cioins.co.in) for disputes up to ₹50 lakh. If you are not sure how the old 80C deduction fits your plans, see tax saving options under 80C.

Key takeaways

• Term insurance gives roughly 70 times more cover per rupee than endowment plans or ULIPs.
• Endowment plans often return about 4-6% IRR; in the illustrative example it was 3.7%.
• ULIP charges can reduce returns by up to around 2.25% a year; the fund management charge is capped at 1.35%.
• As of October 2026, ULIP maturity is tax-free only within the ₹2.5 lakh premium limit; traditional policies lose exemption above ₹5 lakh premium.
• Buying term cover and investing the difference usually gives far more protection with similar or better wealth.
• Use the 30-day free-look period if a policy does not match what you were told.