Shekar · a moment, addressed

My parents want me to buy LIC. Should I?

LIC the institution is trustworthy. The endowment policy they're recommending is a different matter.

Section 0 · Real moments5 min readFirst-time investorPublished
A sturdy wooden-handled black umbrella stands next to a thriving green plant in a terracotta pot on a sunlit table.
Why You Shouldn't Plant Seeds in an Umbrella

An umbrella protects you from rain. A clay pot helps a seed grow. Mixing them ruins both. The same happens when you mix insurance and investment.

Your parents sit down after dinner. Your father slides a LIC pamphlet across the table. 'It's safe. Government-backed. Just sign.' You don't want to fight. But something feels off. You've heard the returns aren't great. You don't know how to say that without making it an argument.

Your parents are right about LIC the institution. Its FY2022-23 claim settlement ratio was 98.53% — one of the highest among all Indian insurers. Sixty years of paying families when it mattered most. That part is completely true.

But when parents say 'buy LIC,' they usually mean an endowment policy — Jeevan Anand or similar. These bundle insurance cover and a savings plan into one product. When you mix them, both become weaker.

Traditional LIC endowment plans have historically delivered 4–6% IRR at maturity. Most years, that's behind inflation. You're growing your money — just not much of it.

There is a cleaner approach. A pure term policy gives you protection and nothing else. A non-smoker 30-year-old can buy ₹1 crore of coverage for ₹8,000–12,000 per year. Buy the protection cheaply. Invest the rest properly.

LIC CLAIM SETTLEMENT Ratio
98.5%
One of India's most reliable protection rates
Analogy

The pond that fills itself

A lily pond doubles its coverage every day. On day 29 it's half full. On day 25, barely visible. The last five days cover more ground than the first 25 combined. This is the difference between 5% and 12%. They look close on paper. But at 5%, money doubles every 14.4 years. At 12%, every 6 years. The pond at 12% fills almost three times while the other pond fills once. The rate is not just a number — it determines how many doublings your life contains.

Enter your current or planned monthly LIC premium. The widget shows what you'd have at maturity — and what the same amount could become split into a cheap term policy plus a mutual fund.

Same premium, different jar

Extra wealth from separating insurance and savings₹0
LIC endowment at 5%₹21 lakh
Term + mutual fund at 12%₹43 lakh

Both paths start with the same 1200000 over 20 years. The endowment jar returns ₹21 lakh. Paying ₹700/month for a ₹1 crore term policy and putting the remaining 4300/month into a mutual fund returns ₹43 lakh. Your parents' instinct — save every month, stay disciplined — is exactly right. The jar they picked is the only thing to change. Returns assumed: 5% for endowment, 12% for equity mutual fund — illustrative, not guaranteed.

Why this matters

You are probably in your 20s or 30s. That means 25–30 years of compounding still ahead of you. At 12%, ₹10,000 a month becomes ₹1.9 Cr over 25 years — total invested ₹30 lakh. Your parents want you to build something real. So do you. The rate you earn determines how much those years are actually worth. The jar matters.

Where people go wrong

  1. Treating 'LIC is safe' and 'this policy is a good investment' as one thingLIC the institution is one of India's most reliable. That says nothing about whether a specific endowment policy is the best place for your savings.
  2. Keeping the old policy to avoid the argumentMany people buy term plus a mutual fund but also keep the old endowment so nobody gets upset. You pay twice. The opportunity cost doubles.
  3. Surrendering the policy early and losing most of the corpusEndowment policies penalise early exits heavily. If you sign today and want out in year five, you get back far less than you put in. Read the surrender value table before signing anything.
Early Exit Penalty.Surrender Value Warning
Leaving traditional endowment plans early can wipe out 30-50% of the money you put in.
If you only remember three things

  1. LIC's claim settlement ratio is 98.53%. The institution is reliable. The endowment policy is not the best investment.

  2. A ₹1 crore term policy costs a 30-year-old ₹8,000–12,000 per year. Buy protection cheaply. Invest the rest.

  3. Your parents are teaching you the saving habit. That lesson is right. The jar they picked can be upgraded.

Saying no to your parents' advice feels like disrespect. So people accept a 30-year opportunity cost to avoid a 10-minute conversation. The conversation is worth having.
Shekar

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