The Insurance Policy I Couldn't Say No To

In 2014, Bala had just started his first job as a school teacher in Madurai, earning ₹18,000 a month. That Diwali, his uncle visited with sweets, blessings, and a proposal form. The same uncle had sold insurance policies to half the family for twenty years.

The pitch was simple. Pay ₹2,000 a month for twenty years. Get life cover. Get a lump sum at the end. “Insurance and investment in one,” his uncle said, tapping the brochure. “You're young. Start now, thank me later.”

Bala signed that evening. Not because he had compared the plan to anything else — there was nothing to compare it to in that room. He signed because the man across the table had attended his naming ceremony, had given him pocket money as a child, and would be at every family function for the rest of both their lives. Saying no felt like a much bigger decision than saying yes.

Twelve years later, Bala sat across from me with the same brochure, asking whether he should continue the policy or stop it. I opened the document and found the sum assured, the premium, the bonus rate.

Everything matched what the brochure had promised twelve years ago. Almost none of it matched what Bala actually needed.

The Babysitter Nobody Questioned

Here is a way to think about what happens inside a savings-linked insurance policy. Imagine two working parents who hire someone to manage their child's daily milk. Every morning, a full bottle leaves the kitchen. Every evening, what comes back is a little less — not enough to notice on any single day, not enough to ask about.

In the first year, more goes missing. In the second year, less. By the third year, the parents have stopped paying attention — the milk seems to be arriving fine, more or less. Years pass. The child grows up on less than was sent, and nobody can say exactly when, or how much, because no single day looked wrong.

By the time anyone adds it up, the years cannot be returned. This is not a story about dishonesty in any one person. It is a story about a structure where small, recurring, invisible deductions are allowed to continue for so long that by the time they are visible, the only thing left to do is accept them.

A savings-linked insurance policy works on the same structure. Every year, the full premium leaves your account.

What gets invested toward your future is whatever remains — and what remains is decided well before you ever see your premium receipt.

The Number on Bala's Policy

I ran the numbers on Bala's policy the way I should have run them on mine, twelve years ago.

His premium was ₹24,000 a year. Under insurance regulations, the commission paid to the agent in the first year on a policy with a premium-paying term of twelve years or more can be as high as 35% of that premium — in Bala's case, close to ₹8,400. From the second year onward, the renewal commission drops sharply, typically to somewhere in the 4% to 5% range.

Annual premium: ₹24,000

Commission to the agent in Year 1 (up to 35% cap): approximately ₹8,400

Renewal commission from Year 2 onward: roughly 4% to 5% (₹1,000–₹1,200 a year)

Plus fund management, administration, and mortality charges — deducted every year, for twenty years

None of this appears as a separate line on the premium receipt. It happens inside the policy, before the fund value is declared.

There is also a quieter design choice at work. Under Section 10(10D) of the Income Tax Act, the maturity proceeds of a life insurance policy remain tax-free only if the annual premium does not exceed 10% of the sum assured. Most savings-linked policies are built to sit exactly at this line — which is why Bala's ₹24,000 premium came with a sum assured of precisely ₹2.4 lakh.

The cover was sized to fit the tax rule, not Bala's family.

After twenty years of charges, and a fund invested largely in debt instruments, Bala's policy is projected to mature somewhere between ₹7.9 lakh and ₹8.8 lakh — assuming a return in the 5% to 6% range, which is typical for this category of plan.

What ₹24,000 a Year Could Buy Instead

Here is the same ₹24,000 a year, spent differently.

A pure term insurance plan — no investment component, no maturity value, only protection — for a ₹50 lakh life cover costs a healthy individual in his 30s roughly ₹6,000 to ₹8,000 a year. That leaves close to ₹17,000 a year free to invest in an equity mutual fund.

Invested at a long-term equity return of around 12% — a reasonable expectation over twenty years, though markets never move in a straight line — that ₹17,000 a year grows to approximately ₹12.2 lakh.

Savings-linked policy, 20 years: ₹2.4 lakh life cover + ₹7.9–₹8.8 lakh corpus

Term insurance + mutual fund, 20 years: ₹50 lakh life cover + approximately ₹12.2 lakh corpus

Difference: roughly 20 times the life cover, with a larger corpus — for the same ₹24,000 a year

Same ₹24,000 a year. Twenty times the protection. A larger corpus at the end.

The Lock-In Nobody Mentions

There is a second cost to these policies that rarely comes up at the kitchen table — liquidity.

For most traditional plans, surrendering in the first two to three years returns nothing at all. After that, the guaranteed surrender value in the early years is typically around 30% of the premiums paid. If Bala had needed his money back after three years of paying ₹24,000 annually, he would have received roughly ₹21,600 against the ₹72,000 he had put in.

ULIPs work differently but land in a similar place. They carry a mandatory five-year lock-in. If the policy is discontinued before that, the fund value moves into a “discontinued policy fund,” where it earns close to 4% — and is paid out only once the five years are complete. The money is not lost outright, but it is frozen exactly when a family might need it most: a job loss, a medical emergency, a sudden expense.

Term insurance has no surrender value because it was never meant to be one. Mutual funds can be redeemed in days. Mixing the two products into one does not combine their strengths — it inherits both their weaknesses.

Why We Still Say Yes

If the math is this clear, why does this keep happening?

Because the person across the table is rarely a stranger. In most Indian households, the person selling these policies is an uncle, an aunt, a family friend, sometimes a parent's colleague of thirty years. Saying no risks a relationship that has existed since before you could speak.

So we say yes. We sign. We feel responsible for the next twenty years, every premium an act of discipline. And the brochure goes into a drawer, where it stays — until a day like the one Bala had with me, when someone finally opens it and runs the numbers out loud.

By the time the numbers are visible, the years cannot be returned.

What Bala Did, and What I Wish I Had Known

Bala didn't surrender his policy. At year twelve, the surrender value penalty made that the wrong call — the better decision was to let the existing policy run to maturity and stop comparing it to what it could have been.

But every rupee from that point forward went somewhere else: a term plan sized for the cover his family actually needed, and a mutual fund SIP for the goals his policy was never designed to meet.

I made the same adjustment with mine, years before I became a SEBI RIA — and it was one of the small decisions that eventually led to this one.

Term insurance protects. Mutual funds grow. Keeping them separate isn't a compromise — it is the entire point.

Hariharan

SEBI Registered Investment Adviser (RIA) | Reg. No. INA000021915

BSE Enlistment: 2443 | Hariharan Wealth Advisory | Puducherry

hariharancwm@gmail.com | hariharanwealthadvisory.online