The ₹88 Lakh vs ₹17 Crore Dilemma: Numbers Reveal the Truth

Walk into any bank or sit down with an insurance agent and you’ll probably hear a pitch like this: “Sir, invest ₹2 lakh every year for 12 years in this insurance plan and after 5 years you’ll start getting a guaranteed income of ₹1.15 lakh every year for the next 35 years. Plus, on maturity, you’ll also receive ₹48 lakh along with the perks of insurance!”

Sounds tempting, doesn’t it? A plan that promises guaranteed income and lump-sum payouts looks like the perfect financial recipe. But here’s the catch.

According to this very scheme, the internal rate of return works out to only 3.7% per year. Its barely better than some savings accounts and much lower than FDs. As per RBI data, India’s average inflation rate between 2000 and 2024 is around 5.9% per year so if you adjust inflation, your return is negative 2.2%. In simpler words, your money is losing purchasing power every single year.

The Silent Termite Eating Your Money

Suppose you start receiving ₹1.15 lakh per year after the initial investment period. With 5% inflation, it will be like just ₹54,000 in today’s value. By the end of the 35-year payout cycle, the same payout will shrink to the equivalent of only ₹18,000. That’s less than the cost of a mid-range smartphone.

What about that shiny lump-sum payout of ₹48 lakh at maturity? Adjusted for inflation, its present value drops to just ₹8.7 lakh. Suddenly, the “assured dream” feels more like a nightmare.

Insurance is supposed to be your safety net, not a half-baked investment plan. The Insurance Regulatory and Development Authority of India reports that life insurance penetration in India is just 3.6%, lower than countries like Malaysia, Thailand and China.

Insurance is for protection while investments are for wealth creation. When you mix the two, you get poor coverage and worse returns.

For instance, a pure term insurance policy for a 30-year-old offering ₹1 crore cover costs as little as ₹12,000 a year. Compare that with the ₹2 lakh you’d spend on the mixed plan, that’s over 90% cheaper. The ₹1.88 lakh you save every year could instead be invested in monthly SIP in mutual fund options, creating multiple crores over time.

According to data from AMFI, equity mutual funds have delivered 12–15% CAGR over 20+ years. In contrast, ULIPs and traditional insurance plans typically crawl at 3–6% CAGR after charges.

Here’s compounding at work: if you invest ₹2 lakh per year at just 4% CAGR for 20 years, you’ll end up with around ₹60 lakh. Now, invest the same amount at 12% CAGR and it jumps to ₹1.98 crore.

Flexibility and Freedom with Mutual Funds

From Step-Up SIP to shifting based on market cycles and enjoying higher liquidity, mutual funds give you the flexibility to adapt your strategy as your goals and life situations change, unlike rigid insurance-cum-investment plans.

MINTIT makes this even easier by helping you design a personalized investment roadmap and guiding you towards the best mutual fund to invest in for your long-term goals.

Let’s say you invest 2 lakh per year in a SIP generating 10% returns. Let’s calculate the final outcome which we bet will surprise you.

Imagine you allocate ₹12,000 per year towards a term insurance policy that gives you ₹1 crore cover. The remaining ₹1.88 lakh is invested in a best investment SIP plan growing at 10% CAGR.

Over 12 years, this SIP grows to ₹44.25 lakh. Let it compound for another 5 years and it swells to ₹71.27 lakh. At this point, you can start systematic withdrawals, say ₹4.27 lakh per year for 35 years, which totals ₹1.49 crore in payouts. Better yet, at the end of those withdrawals, you’ll still have ₹1.42 crore left. Compare this with the mixed plan where you got only ₹88 lakh in total, with nothing left after 35 years.

Math doesn’t lie. Mixing insurance with investment is like buying a cricket bat to play football, it just doesn’t work. With guidance from MINTIT, you can identify the best mutual funds and track inflation-adjusted returns to stay ahead. The sooner you start, the bigger your nest grows.