Why only term insurance make sense

There are so many reasons why endowment policies and ULIPs don't make a good financial investment decision. Mainly if you browse the net for an hour or two, you would come across reasons like:

• Keep insurance and investment separate 
• They under perform market
• Keep it simple

Actually most of the above are not important points in my opinion. If some body is happy with 5% returns LIC gives, let them be happy. Many people anyway don't buy insurance. If LIC can arm twist govt and come up a product where there is no insurance and the mature value is tax free and still give only 5% returns, many of these guys will buy that thinking they are saving maturity charges.

For financially savvy guys it is altogether different matter. But theoretically at least ULIPs can match term insurance + investment in MF options if the policy runs through its term. of course practically an average ULIP NAV is lagging an average MF NAV. But theoretically ULIPs are like separating insurance and investment and they are very transparent in terms of the charges.

So ideally you should not be that bad off if you are investing in ULIPs (especially the new ones where charges came down quite a bit). But there is one reason you find which makes only the term insurance a viable option. 

• Under insurance

You will be terribly under insured. Say you need a 4 crores cover. Assuming ULIPs give 10 to 20 times the annual premium as cover, you will need to pay 20Lakhs to 40Lakhs per annum as premium. A term cover will need 40000 per annum. The later is manageable but the former is not. ULIPs stop being good investment vehicles once the cover to premium ratio increases beyond a point. So under insurance is the main reason for making a case for term insurance. But again in a country where people think they don't need insurance  under insurance is not really an issue.