The Plainspeak / Insurance

Insurance · 3 min

3 questions before you sign a policy

They stop almost every mis-sale. Ask them out loud, in the room, before you sign.

By 37xBetter · Last reviewed September 2026

Most bad policies are not sold by villains. They are sold by people you trust, in a hurry, with a brochure built to hide the one number that matters, a bank relationship manager, a cousin, an "advisor" whose real job is a target. Three questions, asked out loud before the pen moves, bring that number into the light and stop almost every mis-sale. Keep them for the next time the agent calls.

1. Is this one product doing two jobs?

Protection and investment bundled into one plan usually does neither well. A pure term plan protects your family; an index fund or PPF grows your money. The hidden cost of bundling is your cover: the same premium that buys a small endowment sum assured often buys ten to twenty times more as pure term. A healthy 30-year-old can get ₹1 crore of term cover for a fraction of a typical endowment premium. Staple the two together and you usually end up both under-insured and under-invested. The test: would you buy this cover on its own, and this investment on its own? If not, do not buy them stapled.

2. What is the actual return (IRR), not the headline maturity?

The brochure shows a large "guaranteed" maturity and an even larger projection on top. That extra is a reversionary bonus, declared each year by the insurer at its own discretion. It is not promised. Strip the projection, run the real cash flows through an IRR, and most traditional plans land between 4 and 6%.

On ₹50,000 a year for 20 years with an ₹18 lakh maturity, the IRR is about 5.3%, below the 6% inflation this site assumes. The same money in a simple index fund earning 12% a year would be about ₹40 lakh. Ask for the IRR in writing. If they cannot or will not give it, that silence is your answer. Plug your own policy into the endowment calculator and see the real number.

3. What is the tax status, and the term alternative?

Maturity is tax-free under Section 11 read with Schedule II of the Income-tax Act, 2025 (the old 10(10D)) only within limits. From April 2023, if your total annual premium across traditional policies crosses ₹5 lakh, the maturity becomes taxable; for ULIPs the threshold is ₹2.5 lakh. Above those, the "tax-free" pitch no longer holds. And always price a pure term plan first: it gives far more cover for far less money, and frees the rest to actually compound.

The trap on the way out

These plans are also built to punish leaving. Surrender an endowment in its early years and you get back a fraction of what you paid, sometimes almost nothing in year one. That is by design, and it is exactly why the decision has to be right before you sign, not after.

If you already hold one

Do not act on guilt. A plan deep into its term is sometimes worth carrying to maturity, and sometimes the surrender value plus redirected premiums still wins. Run it through the numbers and let them decide, not the regret.