'Which life insurance should I buy — term, ULIP or endowment?' is one of the most Googled personal-finance questions in India. The honest answer: for most people the right choice is a term plan for pure protection, and separately, if needed, a well-diversified investment for savings. Understanding exactly how the three products differ is the first step.

Read more: Life Insurance FY26: Mid-Tier Challengers Reshape the Market.

The One-Minute Difference

  • Term insurance is pure protection. You pay a small premium; your family gets a large lump sum if you die during the term. There is no maturity payout. It is the cheapest way to buy a big cover.
  • Endowment plans combine protection with guaranteed savings. A portion of premium buys death cover, the rest is invested conservatively and returned at maturity or on death, often with bonuses.
  • ULIPs (Unit-Linked Insurance Plans) combine protection with market-linked investment. Premiums are split into insurance and investment, and the investment portion is allocated across equity and debt funds whose value fluctuates.

How They Compare on Cost and Returns

For the same age and sum assured, a term plan's premium is typically 10-15% of what an endowment or ULIP charges, because there is no savings component. A healthy 30-year-old can often buy Rs 1 crore of term cover for Rs 9,000-12,000 a year.

Returns tell the other side of the story. Endowments usually achieve an effective yield of 5-6%, barely beating inflation. ULIP returns depend on fund performance — good equity funds have historically delivered 10-12%, but the market can fall. Term plans pay nothing at maturity; the opportunity cost is 'spent' protection premium. The comparison that matters is not insurance product versus insurance product, but endowment/ULIP versus insurance-plus-mutual-fund, because the savings layer is what a pure investment usually replicates at lower cost.

Expenses and Charges

Endowments embed allocation charges and mortality costs that are opaque. ULIPs carry explicit charges — premium allocation, policy administration, fund management (generally 1.25-1.35% a year) and mortality — most of which fall heavily in the first years. Lock-in is five years for ULIPs. Term plans have negligible charges beyond mortality, which is why they dominate the value conversation.

Tax Treatment

All three qualify for deductions under Section 80C (up to Rs 1.5 lakh a year), subject to conditions. Maturity proceeds are tax-exempt under Section 10(10D) as long as the annual premium does not exceed 10% of the sum assured (20% for policies issued before April 1, 2012 for certain plans) — this cap is easy to breach on endowment and ULIP policies with small cover, turning part of the payout taxable. ULIP equity funds also attract long-term capital gains tax like equity mutual funds.

Which One Should You Choose?

  • Goal is protection: buy term insurance of 15-20x your annual income. The majority of financial planners recommend this.
  • Goal is disciplined long-term savings with a safety net: ULIPs or endowments can work for investors who want an 'all-in-one' and won't invest separately — just check charges and cap.
  • You want guaranteed maturity money: endowment or money-back plans fit, but expect low real returns.
  • You invest regularly on your own: term insurance plus equity mutual funds (or PPF for safety) typically beats any bundled plan on both cover and cost.

Common Mistakes

Buying endowment or ULIP for a small sum assured (under-insured with high premium), treating an endowment as 'investment-grade', and lapsing a term policy for the sake of a savings product are the recurring errors. The correct building blocks are: adequate term cover first, emergency fund, then investments sized to your risk profile.

Source: BimaNiti analysis (2026)