“Traditional insurance plans and Ulips offer agents upfront commissions, ranging from 15% to 35%, in the first year and trailing commissions thereafter. In contrast, mutual funds, especially direct plans, offer comparatively little to no commission. It’s not financial planning, but financial product pushing. When an agent sells a ₹1 lakh traditional policy, they pocket up to ₹35,000 upfront. The same amount in mutual funds? Maybe ₹500-2,000 annually. The math is brutally clear,” says Col Sanjeev Govila (retd), Certified Financial Planner, CEO, Hum Fauji Initiatives, a financial advisory firm.
Products like endowment plans and Ulips are engineered for long lock-ins and opacity. That makes it harder for clients to compare them against mutual funds. “Insurance companies rely on agent networks to grow—so they incentivise the pitch, not the performance,” says Govila.
These products are often marketed as offering “guaranteed returns” or “double benefits” (insurance + investment), making them easier to pitch to risk-averse Indian investors.
However, Amol Joshi, founder, PlanRupee Investment Services, says, “Many a time, a traditional insurance plan is pitched as insurance plus investment, but upon careful investigation, one finds that insurance cover (life cover) is inadequate, and investment returns are sub-par. Many investors are also put off by long lock-in periods that offer no flexibility.”
Many investors still confuse insurance with investment. They like the idea of “money back” or a guaranteed return, even if it’s low. In contrast, mutual funds feel risky, volatile, and intangible. Emotional safety often wins over financial logic. “For the common man, insurance feels ‘safe’ and returns feel like a bonus. They’d rather get back ₹8 lakh after 20 years on a ₹10 lakh investment than pay ₹15,000 annually for ₹1 crore term cover, get nothing back if they survive, and invest the rest in mutual funds,” said Govila.
AMFI-certified mutual fund distributors operate under tighter compliance norms. The Sebi scrutinises mutual fund sales more strictly. “Most insurance agents operate without robust client suitability checks. After 2010, Ulips were cleaned up by the Irdai (Insurance Regulatory and Development Authority of India). Yet, high costs, switching charges, and lack of transparency still plague them. Mutual funds offer better long-term, tax-adjusted returns with full liquidity—but agents won’t push what doesn’t pay them handsomely,” said Govila.
One should not let the fear of ‘getting nothing back’ from term insurance cloud your judgement. The real cost isn’t the premium you pay, but the opportunity lost when you lock your money into low-yield, high-cost products instead of protecting your family affordably and investing the rest wisely.
“I urge investors to recognise the underlying incentives that drive product recommendations in the financial industry. Agents are not always acting in your best interest—commission structures and company targets often guide them. The true test of a good financial product is not how much it pays your agent, but how much it grows your wealth and protects your family,” said Govila.
“Before you purchase, enquire about policy XIRR and the expense structure to evaluate an insurance policy effectively,” added Joshi.