5 types of life insurance in Nepal — explained honestly
Before you buy any policy, you need to know what you are actually buying. This page explains each plan type, what it costs, what you get back, and when agents push the wrong one.
1. Term Life Insurance
Term insurance pays a lump sum to your family if you die during the policy period. If you survive, you get nothing back. That is why it is the cheapest way to get a large coverage amount — and the most honest.
How it works
You choose a coverage amount (sum assured) and a term — for example, NPR 50 lakh for 20 years. If you die within those 20 years, your nominee receives NPR 50 lakh. If you live, the policy ends and you receive nothing. The premium is purely the cost of that protection.
Who it is for
Anyone who needs large coverage at low cost: primary earners with dependents, people with home loans or business debts, parents who want to protect their children's education. A 35-year-old can get NPR 50 lakh of coverage for roughly NPR 18,000–22,000 per year.
An agent earns 15–20% of your first-year premium on a term plan. On an endowment plan, they earn 30–35%. On a NPR 10,000 annual premium, that difference is NPR 1,500–2,000 in their pocket. Term is always the right product for pure protection — the financial incentive just points the other way.
2. Endowment Plan
An endowment plan pays out whether you die or survive the policy term. If you die, your nominee receives the sum assured. If you survive to maturity, you receive the sum assured plus accumulated bonuses. It is insurance and savings combined — but the savings return is poor.
How it works
You pay a higher premium (3–5× more than term) for the same sum assured. At maturity, you receive the sum assured plus reversionary bonuses declared annually by the insurer. The bonuses are not guaranteed — they depend on the insurer's investment performance.
The real return — what agents don't say
For a 35-year-old buying a 20-year endowment plan with NPR 25 lakh sum assured, the effective annual return on your money (IRR) is approximately 4.1%. A bank Fixed Deposit currently returns 8.5% per year. Your money tied in an endowment plan earns roughly half what a bank savings account would give you.
Agents typically say: "Pay NPR X for 20 years, get NPR Y at maturity — that's your money back plus more!" What they do not say: if you had put that same NPR X each year in a Fixed Deposit, you would have significantly more than NPR Y at the end. The endowment plan is not a bad product — it is just a bad savings vehicle. Use it only if you genuinely want forced savings AND life cover in a single product and you understand the return trade-off.
What you get back if you cancel early (industry average)
This is what agents rarely put in writing. Percentages shown are approximate share of total premiums paid that you would receive back.
Industry average. Actual values vary by insurer and policy. Source: NIA-approved policy terms.
3. Whole Life Insurance
A whole life policy covers you for your entire life — not just a fixed term. You pay premiums for a set period (usually 20–30 years), after which the policy is paid up and coverage continues until death. Your nominee is guaranteed to receive the payout eventually.
How it works
Premiums are higher than endowment because coverage lasts indefinitely. The policy builds a cash value over time, and you can take a loan against it. At death, your nominee receives the sum assured plus accumulated bonuses, regardless of when you die.
Who it is for
Whole life insurance makes sense for estate planning — if you want to leave a guaranteed amount to your heirs regardless of when you die, or if you have dependents who will need long-term financial support. For most people under 50 with a specific financial goal, a term plan or endowment is more appropriate.
4. ULIP — Unit Linked Insurance Plan
A ULIP splits your premium into two parts: one buys life cover, the other is invested in funds (equity, debt, or balanced). Your maturity value is not guaranteed — it depends on market performance. ULIPs can give higher returns than endowment plans, but they can also give lower returns or a loss.
How it works
You choose a fund allocation (e.g., 60% equity, 40% debt). The insurance portion remains fixed. The investment portion rises and falls with the market. Most ULIPs in Nepal have a 5-year lock-in period. Charges include fund management fees, policy administration charges, and mortality charges — these vary by insurer and significantly affect net returns.
ULIP charges are often buried in the policy document. Ask for the "total expense ratio" in writing before signing. High-charge ULIPs can erode your investment returns significantly in the first 3–5 years. If the fund underperforms, you may get back less than you put in — your life cover remains, but your savings goal fails. Do not buy a ULIP unless you have read the charges and understand market risk.
5. Money Back Plan
A money back plan pays you a percentage of the sum assured at regular intervals during the policy term — not just at maturity. If you die during the term, your nominee receives the full sum assured regardless of how much you have already received.
How it works
For example, a 20-year money back plan for NPR 25 lakh might pay you NPR 5 lakh every 5 years (years 5, 10, 15) and NPR 10 lakh at maturity — plus bonuses. The periodic payments make it useful for goals with specific cash needs: a child's education at year 10, a wedding at year 15, retirement income at year 20.
The trade-off
Because some money is returned early, the compounding effect is reduced. The effective IRR is lower than endowment plans (~3.6%), and premiums are higher. The periodic payout structure is useful for disciplined savers who would otherwise spend their savings — but the return is still poor compared to a Fixed Deposit.
What your money actually earns — IRR comparison IRR IRR = the real annual % return on your money, like a bank interest rate. Higher is better.
A lower IRR than a bank Fixed Deposit means you are paying for protection, not savings — and that protection is worth having, but you should know the cost.
| Plan Type | Avg IRR (20 yr) | Bank FD (8.5%) | Difference | Agent Commission |
|---|---|---|---|---|
| Endowment | 4.1% | 8.5% | −4.4% | 35% |
| Whole Life | 3.8% | 8.5% | −4.7% | 30% |
| Money Back | 3.6% | 8.5% | −4.9% | 32% |
| ULIP | Market-linked | 8.5% | N/A | 25% |
| Term | Pure protection — no savings | 8.5% | N/A | 15% |
Assumes: Age 35, NPR 25L sum assured, held to full maturity. FD rate: NRB avg FY 2081/82. IRR figures are industry averages — actual values vary by insurer and bonus declarations.
Already have an endowment or whole life plan? Should you stay?
This is the most common question — and the one most agents won't answer honestly. Here are the facts to help you decide.
- You are in year 10 or later — most of the penalty period is behind you
- You have dependents who rely on the life cover and cannot replace it cheaply (age 50+ with health issues)
- The forced savings discipline has actual value to you — you would spend the money otherwise
- You are within 5 years of maturity — the compounding loss of surrendering now exceeds the gain
- You are in year 2–4 and have not yet passed the highest-penalty window
- You can replace the life cover with a cheaper term plan
- The money freed up can be put into a higher-return vehicle (FD, mutual fund) for the remaining term
- Your financial situation has changed and the premium is a genuine hardship
The only honest answer requires doing the actual math for your policy. Use our surrender calculator to see which path gives you more money at your original goal date.
Run the numbers: Stay vs Surrender →