I combined investment and insurance and paid the price

Published: November 22, 2023 at 6:00 am

Last Updated on November 22, 2023 at 11:33 am

In this edition of the reader story, we have an account of a reader making the classic mistake of combining investment and insurance, the price he had to pay. The reader wishes anonymity.

About this series: I am grateful to readers for sharing intimate details about their financial lives for the benefit of readers. Some of the previous editions are linked at the bottom of this article. You can also access the full reader story archive.

Opinions published in reader stories need not represent the views of freefincal or its editors. We must appreciate multiple solutions to the money management puzzle and empathise with diverse views. Articles are typically not checked for grammar unless necessary to convey the right meaning and preserve the tone and emotions of the writers.

If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail dot com. They can be published anonymously if you so desire.


Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

Please note: We welcome such articles from young earners who have just started investing. See, for example, this piece by a 29-year-old: How I track financial goals without worrying about returns. We have also started a new “mutual fund success stories” series. This is the first edition: How mutual funds helped me reach financial independence. Now, over to the reader.

We have all received the advice – “Do not combine insurance and investment”. Typically, we are sold an endowment or ULIP policy before we gain proper knowledge on investment avenues such as mutual funds or equity. Even when we have some idea that we should not mix insurance with investment, we fall prey to sales talks from RMs or Insurance agents. Here is a real-life example of a mistake I made and my learnings from this mistake being invested in over 20+ years.

Policy details

  • Policy Name LIC New Jeevan Shree (Plan 151)
  • Policy Start Date Oct 2002 for 25 Years policy with 12 years premium payment
  • Key Features: Guaranteed Rs 70 for every thousand Sum Assured for each year of Policy.
  • Loyalty Bonus: declared at the end of the policy
  • Actual: Sum Assured – 35,00,000
  • Guaranteed Addition = 61,25,000 (3500 * 70 * 25)
  • Loyalty Addition – 4,00,000 to 12,00,000 (Only known at the end of the policy)
  • Yearly Premium Rs. 2,60,316 for 12 Years. Total: 31,23,792
  • Maturity: Oct – 2027
  • Current Value: Approx 50,00,000 (If the policy is closed today).

While it looks fantastic with the guaranteed addition, the major attraction to take the policy was the 1 crore maturity value. Back in 2002, it was a great target, but that is what innumeracy and our lack of imagination for future growth can do to us.
Even today, I can see agents referring to Jeevan Shree and New Jeevan Shree (popular LIC policies with relatively higher returns), which no longer exist to justify the greatness of endowment policies.

Around the 9th year, I realised the mistake, but it was too late for a course correction. Between years 10 and 12, I thought long and hard to decide whether to continue to pay the premium or make it paid up. However, the damage was already done, so I paid the premium fully to keep the policy in force.

Let’s consider an imaginary situation of not mixing insurance and investment. Suppose the premium for 35 lakh term cover in 2002 for a 26-year-old was about Rs. 5,500.

So 5500 * 25 = 137500 needs to be set aside for the yearly premium of term insurance to match the insurance coverage of the above policy.

That leaves 31,23,792 – 1,37,500 = 29,86,292 for 12 years for Investment. Let’s assume we invest this amount in mutual funds for 12 years as we paid the yearly premium of this policy.

That is approx. = 2,48,858 per year for 12 years or 20,738 per month for 12 years. Let’s round to 2,48,000 yearly and 20,500 monthly for easy calculations. I took 2 different funds available in 2002 and did a simulation as a yearly SIP and monthly SIP for 12 years.  Here are the results (as of 19th Nov 2023) from a dummy portfolio from ValueResearch online.

  • LIC: Rs. 50,00,000
  • HDFC Flexi – YearlySIP: Rs. 4,87,03,496. XIRR: 18.3%
  • HDFC Top100 YearlySIP: Rs. 4,12,29,543. XIRR: 17.2%
  • HDFC Flexi – MonthlySIP: Rs. 4,16,25,186. XIRR: 17.8%
  • HDFC Top100 Monthly SIP: Rs. 3,50,415,08. XIRR: 16.6%

Both funds have changed character over these years and are considered regular plans to keep things simple. I have chosen these funds for analysis as these were my first set of mutual funds when I started investing.

Editor’s note: Such a backtest with specific funds has built-in biases and assumptions, some of which may not be practical. Nonetheless, the message the reader wishes to convey is unchanged and clear.

It is obvious mutual funds are a clear winner by miles, which is why they say do not combine insurance and investment.

With an assumption of 4,00,000 loyalty addition, XIRR as of maturity date is 6.05.  While it is impossible to predict the market, we will have to wait and see the mutual fund returns on maturity.

Let’s see some Pros and Cons of this Policy.

  • Discipline: The only advantage I see is the discipline it brings into paying the yearly premium for a careless investor.
  • Lock In: Money invested is truly locked in until you get the amount at maturity. In Mutual funds, we might sell, withdraw partially, switch funds, etc. Even then, a disciplined investor should do well in mutual funds.
  • Taxation: The above policy is tax-exempt as it was taken in 2002. However, even with LTCG, a mutual fund does just fine due to the higher returns
  • Low Returns: Returns are low and do not beat inflation. While large future value looks attractive in the prospect document, in the real world, it is useless. Neither Insurance is adequate nor the returns.
  • Liquidity: We can liquidate or withdraw partially from the mutual funds if there is a short-term need. Partial withdrawal could be a terrible step in an endowment policy, and the process is cumbersome.

The lessons will remain the same even if you divide all numbers by 10 (. Do not mix insurance with Investments.

In Summary, I learned the hard way that we should not combine Insurance and investment. Taking adequate Term and health coverage and investing enough for goals will be a better approach for anyone. Happy Investing.

Reader stories published earlier:

As regular readers may know, we publish a personal financial audit each December – this is the 2022 edition: Portfolio Audit 2022: The Annual Review of My Goal-based Investments. We asked regular readers to share how they review their investments and track financial goals.

These published audits have had a compounding effect on readers. If you would like to contribute to the DIY community in this manner, send your audits to freefincal AT Gmail. They could be published anonymously if you so desire.

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.

  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter with the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

Explore the site! Search among our 2000+ articles for information and insight!

About The Author

Pattabiraman editor freefincalDr. M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter, Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu gets a superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl version covers of Chinchu gets a superpower.
Most investor problems can be traced to a lack of informed decision-making. We have all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision-making and money management is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & it's content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)