Life Insurance Policy Investment Returns – How To Calculate

(Last Updated On: March 4, 2018)

Life Insurance Policy Investment Returns – How To Calculate. When you are planning to invest in an Insurance Policy, it is natural to doubt whether it is the best investment option available to you at that point of time. You may be also eager to know how much investment returns you will get from the policy. In this post let us have a detailed discussion about methods to calculate the investment returns of an insurance policy.

Before going into the investment return calculations, it is good the know the major types of policies available in the market.

Major types of Life Insurance Policies available in the market

1. Conventional policies: These are the most popular type of life insurance policy in the current scenario. Conventional policies include, ‘Endowment Assurance(Sum assured along with accrued bonuses are paid to the policy holder at the time of maturity) and ‘Money back(Sum Assured is paid as several periodical instalments and the accrued bonus is paid along with the final instalment or maturity) type of policies.

2. Unit Linked Insurance Policies (ULIP): ULIPs are specialised insurance polices where the amount is invested in the share market, bonds or money market depending on the type of the fund selected. Invested amount is converted into units based on the unit price available at the time of purchase. Maturity value or the surrender value shall be the amount equal to the unit price (available on that particular date) multiplied by the total number of units available.

3. Term Insurance Policies: Term Insurance policies are pure insurance oriented plans where no savings portion shall be available. There will be no maturity value or surrender value for these type of policies.

Components of Conventional Policy Premium

Conventional policies or Endowment Assurance type of policies provides two types of benefits to the policy holders.

  1. Insurance Benefits
  2. Investment Benefits

So naturally the premium paid for the plan will also include elements of both these components. Before calculating the rate of returns of the plan, we should remove the insurance component from the premium paid and obtain the savings component in the policy.

A simple method is to find out the premium payable for a pure term insurance policy and subtract it from the total premium payable.

How to calculate the investment returns of an Insurance Policy?

In order to find out the savings element in an insurance policy, let us consider the premium payable by a person for taking an Endowment Assurance Plan and a Term Assurance Plan.

Endowment Vs Term – Details Considered for Comparison
Age : 35 YearsSum Assured : 10,00,000Term : 25 YearsPremium Payment : 25 Years
Comparison of Premium – Endowment Vs Term Assurance
Savings Plan : LIC’s Endowment Assurance Plan (814)Term Insurance Plan : LIC’s Anmol Jeevan (822)
Yearly Premium* (1)38,866Yearly Premium*(2)4,910
Total Premium Paid in 25 Years9,71,650Total Premium paid in 25 Years (2)1,22,750
Savings portion of premium

(1) – (2)

33,956Term Insurance Portion of premium (2)4,910
* Premium without GST is considered

So, from the above calculation savings portion for a 25 year term, endowment assurance  policy is Rs. 38,866 per year and the total savings portion premium comes to 8,48,900 only.

Approximate Maturity Value Calculation – Endowment Assurance Plan (based on current bonus rates)

For an Endowment Assurance plan, maturity amount includes following components.

  1. Sum Assured
  2. Bonus
  3. Final Additional Bonus

Approximate maturity amount calculation for the plan considered in the aforementioned  example as per the current bonus rates is given below.

Endowment Assurance Policy – Maturity amount calculation
Sum Assured10,00,000Term25 Years
Bonus Rate*Rs. 48 / 1000 SA (per year)Final Additional Bonus Rate450 / 1000 SA
Approximate Maturity Amount*
Sum Assured10,00,000
Final Additional Bonus(450*100000/1000)4,50,000
Total Maturity Amount26,50,000*
Calculation of Internal Rate of Return (IRR) – Insurance Policy

Internal rate of any periodic investment can be easily calculated using the IRR function of Microsoft Excel. As the savings portion premium in the above mentioned example is just Rs. 33,956 and the expected maturity value* is Rs. 26,50,000 , we can calculate the Internal Rate of Return (IRR) using these values. The calculation is given in the figure given below.Life insurance policy investment returns calculate IRR

From the above calculation, we can understand that the Endowment Assurance policy, as mentioned in the example given above, is giving an Internal Rate of Return (IRR) of 7.93 %.

Investment returns of 7.93% in the current market scenario of dwindling interest rates is really attractive from any angle of view.

Investment returns in Insurance Vs Bank Fixed Deposits

In the present scenario, banks are offering interest rates around 6% per annum and the rates are in the trend of going down further. Further, bank interest returns are subject to income Tax also. This again brings down the effective interest rates further.

On the other hand insurance policies offer Income Tax benefits also. Premium paid is eligible for income tax rebates u/s 80 C and maturity amount is exempted from income tax u/s 10(10D) of income tax act.

* Maturity value of insurance policy is calculated based on the bonus rates and may vary depending on the experiences of LIC of India.

Read more:

LIC Bonus rates 2016-17 with Charts and Illustrations

Insurance vs Other investment – Everything you need to know




6 thoughts on “Life Insurance Policy Investment Returns – How To Calculate

  • February 25, 2019 at 7:44 am

    Sir, article is very good but you did not include DAB premium with term insurance premium i.e. Rs. 1000/- for sum assured 10 lacs. After including DAB the return will come above 8%.

    • February 25, 2019 at 3:48 pm

      Hi Tushar,
      What you said is right. Actually, I wanted to show that even conventional policies can give decent returns compared to other investment methods. Well, I shall add this point when I update the article. Thank you.

  • February 27, 2020 at 11:57 am

    The data is valid till today. I have recently made some calculations and I’m able to get 6.5-8% returns from LIC policies, but each and everyone of the 5 investment advisors I asked were in denial and said you can never get good returns from LIC. What is the reason for this? Why is every non-LIC agent advisor against LIC as an investment?

    • February 29, 2020 at 10:45 pm

      LIC policies are offering steady returns as mentioned by you and are a secured investment option with risk coverage. Many of the so-called investment advisors active in the net, criticizing the returns of LIC are ex LIC agents who failed to make decent sales returns from their agency. I think the answer is clear to you.

  • June 29, 2020 at 11:30 am

    Lic policy have bonus rate of 3.75% only. Return rate is 4-6% only

    • July 4, 2020 at 3:15 pm

      Are you talking based on IRR or what is the source of information?


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