Life insurance policy, which for many years had been perceived as a tool for investment rather than protection, is losing popularity among the millennials for the right reasons — lack of transparency and growing awareness about mutual funds.

But another frugal insurance product — term insurance — is gradually taking its place. “In terms of life insurance, the premium you pay includes the basic cost to cover the sum insured and an additional amount of money, which the insurance firms invest in equity market. The returns of such investment are passed on to the insurer only through limited, fixed bonuses every year or at the time of maturity,” said Sukanya Soundar, a financial consultant.

The lack of transparency about the funds being ploughed into the market by the insurance firm, the fixed, limited returns and the inability to withdraw funds before maturity are what makes the whole life insurance lose lustre, she said. “But the term insurance policy is simple. It requires you to pay only the basic cost covering the sum insured, but you get the same or a larger life cover. So, a term insurance is preferred over the life insurance policy,” she said.

“If you opt for a term insurance policy for risk management and even choose to invest the remaining savings in an average-performing multi-cap mutual fund, returns at the end would be relatively better than what you’d get from a life insurance policy,” Aravind Muthuthandavan, a certified financial planner said.