Insurance is Being Sold as Investments

Let me start with something you may have experienced yourself.

You get a call — maybe from a distant cousin, your dad’s friend, or someone you haven’t spoken to in years. And they say something like:

“Bhai, ek plan hai — insurance bhi milega, returns bhi ache milenge. Tax bhi bachega!”

Sounds tempting, right?

It’s safe, it grows your money, and it keeps your family protected. One product, multiple benefits. What could possibly go wrong?

Well… quite a bit, actually.

Over the past few decades, insurance products have been increasingly packaged and sold as investment tools, especially in India. The line between financial protection and wealth creation has been deliberately blurred — not by customers, but by agents, banks, and sometimes even the companies themselves.

So in this blog, we’re going to talk — honestly — about why insurance is being sold as investment, what’s behind this strategy, and most importantly, how it affects you.

Let’s dive in.

First, What’s the Original Role of Insurance?

Before we get into the “why,” let’s get the basics straight.

Insurance was never meant to make you rich.
It was designed to protect your wealth, not create it.

Think about it this way — when you buy car insurance, are you expecting a return on that?
No, right? You’re just protecting yourself from a financial hit in case of an accident.

Similarly, life insurance is supposed to ensure that your family is financially secure if something happens to you. That’s it.

It’s not an FD. It’s not a mutual fund. And it’s definitely not a stock.

But somewhere along the way, the narrative changed.

So Why Is Insurance Being Sold as an Investment?

1. Because it’s easier to sell.

Let’s be honest: if someone told you to pay ₹30,000 every year for 20 years, just to protect your family in case of your death, would you buy it?

Most people wouldn’t. Especially when they’re young, healthy, and think nothing can go wrong.

But now imagine someone tells you:

“Sir, invest ₹30,000 for 20 years and you will get ₹12-14 lakh post 20 years along with the insurance cover. 

Boom. You’re hooked.

When insurance is packaged as an investment — especially with “guaranteed returns” — it suddenly feels like a win-win. Even if nothing happens to you, you get your money back with interest.

Sales 101: Selling fear is hard. Selling returns is easy.

2. Because agents make better commissions.

This one’s no secret. Traditional insurance agents — and even some private bankers — earn hefty commissions on investment-linked policies like ULIPs, endowment plans, and money-back policies.

On the other hand, term insurance — the pure kind that offers large cover at low cost — offers barely any commission.

So guess what gets pushed more aggressively?

Yup. Investment-linked insurance.

You’d be shocked to know: for some policies, agents can earn up to 30–35% of your first-year premium. No wonder they’re so “invested” in your investment.

3. Because people don’t understand the difference.

Many people in India — especially those outside metros — don’t understand the difference between insurance and investment.

In fact, the term “LIC karwa liya hai” is often used to mean “I’ve started saving money.”

Nobody questions whether it’s a ULIP or term plan or endowment. It’s just assumed that life insurance = investment = future security.

This confusion isn’t accidental. It’s been built — over decades — through marketing, word of mouth, and poor financial literacy.

And unfortunately, many people realise the truth too late.

What Happens When You Mix Insurance with Investment?

Here’s what most people don’t see — you end up compromising both.

1. You get poor life cover.

Let’s say you buy a ₹1 crore term insurance policy. You’ll probably pay around ₹10,000 to ₹12,000 a year — depending on age and health.

But if you buy an endowment or ULIP plan for the same ₹1 crore cover, your premium might shoot up to ₹1.5 lakh per year or more.

Why? Because now you’re not just paying for insurance — you’re also “investing.”

So if you choose the investment-linked option but don’t have the budget to pay ₹1.5 lakh, what do you do?
You reduce the cover — maybe to ₹10 or ₹15 lakh — just to make it affordable.

So now you’ve paid a high premium for a plan that won’t even protect your family adequately. That defeats the whole point of insurance.

2. You get mediocre returns.

Think about it. Your premium is split into:

• Mortality charges (insurance cover)
  
• Administrative fees
  
• Agent commission
  
• Only then does the remainder get invested
  

By the time your money actually starts working, a big chunk has already gone into non-investment costs.

Even if your policy claims a 5% or 6% “guaranteed return,” once you factor in inflation and taxes, your real return could be less than a basic fixed deposit.

You thought you were investing for your future, but in reality, your money has been crawling along while everyone else’s ran ahead.

3. You lose flexibility.

With investment-linked insurance, you’re often locked in for 15–20 years. If you stop midway, there are surrender charges. If you withdraw early, you might lose all the benefits.

Compare that with a term plan (cancel anytime) + mutual funds (redeem anytime) — and the difference is night and day.

Why bind yourself to a rigid product when better alternatives are available?

But What About Tax Benefits?

Yes, investment-linked policies offer tax deductions under Section 80C and maturity benefits under Section 10(10D).

But for your information, insurance is not an investment.

Then What’s the Better Way?

Instead of combining insurance and investment, here’s what most financial planners recommend — and for good reason.

1. Buy a pure term insurance plan.

This gives you large life cover at a small cost. It protects your family without eating into your wealth.

2. Invest separately — based on your goals.

For long-term growth, consider mutual funds or other investment products. For safety, look at FDs or government bonds.

By separating the two, you gain:

• Higher cover
  
• Higher returns
  
• Lower costs
  
• Greater control
  

It’s like eating a good thali — roti and sabzi, each doing their job. No need to mix everything into one giant confusing mess.

So Why Is It Still Happening?

If this is such a bad idea, why are lakhs of people still buying insurance-as-investment products every year?

Here’s the honest answer: because they don’t know any better.

There’s no real personal finance education in schools or colleges. Most people rely on relatives, bank managers, or agents. And nobody questions the fine print until it’s too late.

Even big banks often push such products because they earn more from them than from savings accounts.

And once you buy, you’re stuck. Even if you realise the truth in year 3 or 4, surrendering the policy means losing money. So people just… keep going.

It’s a classic case of “ab toh nibhaana hi padega.”

Also, check – Flat Fee vs Percentage-Based Fees

Final Thoughts: Protect First. Then Grow.

If you’ve made it this far, here’s the one takeaway I want you to remember:

Insurance is for protection. Investment is for growth. Don’t confuse the two.

A financial plan should:

• Protect your family (term plan)
  
• Grow your money (investments)
  
• Save on tax (smart instruments)
  

Trying to do all three with one product usually means you’re not doing any of them properly.

If you already have an investment-linked insurance policy, don’t panic. Review it, understand the costs, and seek professional advice on whether to continue or cut your losses.

And if you’re planning to buy one — pause.
Ask: “Would I still buy this if it gave zero returns?”
If the answer is no, it’s probably not a pure insurance product — and probably not the right choice.

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Disclaimer – This article is for educational purposes only and does not intend to substitute expert guidance. Mutual fund investments are subject to market risks. Please read the scheme-related document carefully before investing.