LIC is now virtually the brand that is the synonym of life insurance in India. However, there is one thing that I would like to tell you, that your family is not really safe by simply having an LIC policy. The actual issue is whether such a policy can offer sufficient protection. This is where the misunderstanding begins, and honestly speaking, it is a serious misunderstanding that should be sorted out.
Everyone has been brought up in the notion of saving money. New parents usually receive their first financial advice in the form of “Bacche ke liye LIC le lo” (Take an LIC policy on behalf of the child). Being a saver is a fine thing to do, but it can be a big blunder to equate savings with safety. Before proceeding any further, it is important to clarify that there is one thing between protection and investment. By discussing the concept of protection, in other words, life insurance, we are posing one simple question: “Can my family live their lives without struggling financially in case I die tomorrow?
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The “LIC Policy” Problem: The Middle-Ground Trap
An endowment plan or a money-back policy is what people in India are likely to mean by an LIC policy. These are plans that combine insurance with investment. You are paying a premium, and you are insured against some amount. If you die, your family gets the money. If you live to the end of the term, you get your money back with some “bonus.” Sounds like the perfect “paisa vasool” deal, right? You get protection, and you get your money back! This is the essence of the sale of millions of these policies.
However, its greatest weakness is that it is a “hybrid” in nature. This is why it is not a good financial move:
1. Low Coverage
This is because a small part of your premium is invested in insurance, but not in insurance. At a premium of ₹30,000/year, you may receive a coverage of ₹5 lakhs only. Will ₹5 lakhs allow your spouse to bring up children, pay off a home loan, and continue with the same lifestyle over the years? It is not sufficient for almost any situation for an Indian middle-class family.
2. Low Returns
The returns are only about 5-6%, and that is hardly inflation-beating on the investment side. You are actually receiving minimal protection and poor value for your money. You have fallen into the trap of the middle ground.
3. High Costs
These policies are expensive internally due to their complicated structure and commissions. You may believe that you are creating a corpus, but a good portion of your funds does not work on your behalf.
Term Insurance: The No-Nonsense Hero of Protection
Term insurance is the exact opposite. It’s a pure, simple product. I refer to it as the superhero of financial planning since it has a single task, which it does very well: it offers enormous protection at low cost. It is a periodical (the term) contract. You pay a premium, and in the process, the insurer assures you that a sum assured, a life cover, will be paid to your nominee in case of death within that period.
There are absolutely no frills. In case of survival of the term, nothing is returned (and in some more recent “Return of Premium” plans, not recommended, they tend to return the pure product at a high cost). It is this portion of give nothing back which makes many Indians reluctant. Why do you want to spend my money on a premium and not receive something back? they ask. This is not the right way to consider it.
You do not purchase a fire extinguisher in case your house catches fire, so that you can consume your money. You buy it for peace of mind. Term insurance is such a peace of mind. Term plans are amazingly covered at a low cost by removing the investing element from them.
Comparing True Family Protection
This table illustrates the stark difference in the kind of protection your family gets.
| Feature | LIC Policy (Endowment/Hybrid) | Term Insurance |
| Sum Assured (Life Cover) | Very Low (e.g., ₹5 Lakhs cover for ₹30k/yr) | Very High (e.g., ₹1 Crore cover for ₹12k/yr) |
| Premium Cost | High (you pay for both cover and investment) | Low (you only pay for cover) |
| What You Pay For | Both a death benefit and a maturity benefit | Strictly a pure death benefit |
| If You Survive | You receive the maturity amount | You receive nothing |
| Who is it for? | People seeking simple (but low) savings | Everyone – protect their family |
Note: Sum Assured values may vary depending upon Age, Gender, Health, etc.
Making the Practical Decision for Your Family
It is not a choice of a single brand versus the other. One of their brands is LIC (Life Insurance Corporation of India), and they also sell term insurance. The decision is related to the selection of the product type. The ultimate one thing you need to do in your plan of finances is to purchase a term insurance policy.
Consider the finances of your family. Subtract your assets (house loan, car loan), future demands (educating the kids, getting married), and your household expenses. Your required life cover is the sum total of both. To the majority of middle-income Indians, this will be between ₹1 Crore and above. This will provide you with a term plan at a premium that is likely to be lower than what you are paying for your streaming subscriptions.
When you have this wall of protection in place, then you can consider investments. Your insurance policy should not be your main investment. Invest your money in a mutual fund, ELSS (tax saving), PPF, or equity, provided you do not mind risking. These will accumulate wealth much better on a long-term basis than any hybrid insurance plan
Conclusion
At the end of the day, “protection” means that your loved ones won’t have to compromise their dignity or dreams if you are not there. The low-value hybrid “LIC policy” makes you feel safe. It gives your family a lifebuoy when they actually need a life raft. Do not be fooled into the paisa vasool trap. The death benefit is the sole paisa vasool in your family in case you die.
Get a huge dedicated life cover in the form of a term plan. And that term plan can be purchased at LIC in case you believe in the brand. The only difference is that it should be a Term Insurance, which is not an Endowment or Money-Back plan. Well, that is the way you take good care of your family. Now is the moment to have a serious talk and do a serious analysis of what you are currently doing. It might be the most critical financial decision you will ever make in your life to make the shift.
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