Term insurance
Cheap protection for your family
Term insurance is the plainest, most honest kind of life cover, and one of the most important financial products most people will ever buy, precisely because it’s so cheap and so easy to misunderstand.
What term insurance is
You pay a small yearly premium. If you die during the term, say the 30 years you choose, your family gets a large fixed payout. If you outlive the term, you get nothing back.
That “nothing back” isn’t a flaw. It’s the reason it’s so cheap. You’re buying pure protection, not a savings pot. Like paying for a fire extinguisher you hope never to use, the value is in the safety, not a refund.
Why it matters so much
The point of life cover is simple. If your income vanishes, the people who depend on it shouldn’t be plunged into a crisis on top of their grief.
The rupee example. A healthy person in their late 20s can often get ₹1 crore of cover for roughly ₹800 to ₹1,200 a month. For that small, steady cost, if something happens to you, your family receives ₹1 crore to replace years of your income, to keep the household running, clear loans, and stay afloat.
Few products give so much protection for so little.
Keep insurance and investment separate
This is the single most valuable idea in this lesson.
Why “cover plus returns” plans disappoint
Many plans promise life cover and a maturity payout: endowment plans, money-back plans, ULIPs. They sound like a smart two-in-one. In practice they usually deliver weak cover and weak returns, at a high cost, because they’re trying to do two jobs and doing neither well. The cover is a fraction of what pure term gives for the same money, and the “returns” often lag simple investments.
The cleaner way
Split the two jobs:
- Protect with cheap term insurance.
- Grow your money separately, in something like an SIP.
Do the same money this way and you typically end up with far more cover and better growth than any combined plan offers. Insurance protects; investments grow. Mixing them tends to blunt both.
How much cover, and for how long
A rough rule: aim for cover worth around 10 to 15 times your yearly income, enough to genuinely replace you for years. Adjust up if you have big loans or many dependents.
A more careful way to size it: add up what your family would need to keep living as they do, for as many years as they’d need it, then add any outstanding loans, then add big future costs like education. Subtract what you’ve already saved. That gap is your cover.
Picking the term length
Cover the years people actually depend on you. For most, that means until the home loan is cleared and the children are earning, which often lands somewhere around age 60.
Longer isn’t automatically better. Paying premiums for cover in years when nobody needs your income is money that could have been invested instead.
When to buy
You mainly need term insurance once someone depends on your income: a spouse, children, ageing parents. If nobody relies on what you earn, you may not need it yet. And buying young helps. Premiums are lowest when you’re young and healthy, and they lock in for the term.
Why your office cover isn’t enough
Many people assume they’re covered because their employer provides group life insurance. Two problems with leaning on it.
It’s usually small, often just a few times annual salary, well below what a family would need. And it belongs to the job, not to you. Change employers or lose the role and the cover goes with it, typically at an age when buying fresh cover costs more.
Treat employer cover as a top-up. Own your own policy underneath it.
The claim is the only thing that matters
A policy is a promise to pay later. So judge insurers on whether they actually pay.
Look at the claim settlement ratio published in IRDAI data, which shows the share of claims an insurer settled. Prefer one that’s been consistently high over several years rather than good once. Also look at how long settlement took, because a family waiting months for money is still in trouble.
What can void a claim
Almost every rejected claim traces back to something not disclosed at the time of buying.
- Health conditions, even ones that feel minor or well controlled.
- Smoking or tobacco use. Declaring it raises the premium. Hiding it can void the payout.
- Your real income, which the insurer uses to justify the cover amount.
- Risky occupations or hobbies.
Answer everything honestly, even where honesty costs you. A higher premium you can afford beats a claim your family can’t collect.
A couple of practical notes
- Be honest on the form. A hidden fact can let the insurer reject the claim later, exactly when your family needs it.
- Buy enough, not extras. Skip the add-on riders you don’t understand. A large, simple, honest cover beats a small one loaded with features.
- Tell your family the policy exists. A policy nobody knows about is never claimed. Keep the document where they can find it, and name a nominee.
- Pay annually if you can. It’s usually cheaper than monthly, and one reminder a year is easier to not miss.
Common mistakes
- Buying a combined plan because it promises money back.
- Under-insuring with a round number like ₹25 lakh that wouldn’t replace much.
- Relying only on employer cover, which ends with the job.
- Hiding a health detail to shave the premium.
- Letting the policy lapse by missing a renewal, then needing fresh medicals to restart.
Buy cheap protection for those who depend on you, invest the rest on its own, and you’ve handled the two jobs that a pile of complicated products only pretends to.
Next, see how tax deductions treat your premium, or browse the money basics path.
This is general education, not financial advice. Premiums vary by age, health, and insurer.
Questions people ask
What is term insurance in simple words?
Pure life cover for a fixed number of years. You pay a small yearly premium, and if you die during the term your family receives a large fixed payout. If you outlive the term you get nothing back, which is exactly why it costs so little.
How much cover do I actually need?
A common rule of thumb is 10 to 15 times your yearly income, raised if you carry big loans or support many people. The better test is whether the payout would genuinely replace your income for the years your family would need it.
Do I need term insurance if nobody depends on my income?
Usually not yet. The purpose is to replace income that others rely on. If you're single with no dependants and no loans anyone else would inherit, you can wait. Buying young does lock in a lower premium, which is the one argument for early.
Why is term insurance better than an endowment or ULIP?
Because it does one job well instead of two jobs badly. Combined plans give a fraction of the cover for the same premium and usually lag simple investments on returns. Buying term and investing the difference generally leaves you with more cover and more money.
What is a claim settlement ratio?
The share of claims an insurer paid out in a year, published in IRDAI data. A consistently high ratio over several years is reassuring. Read it alongside how quickly claims were settled, since a slow payout still hurts a family that needs money now.
Can an insurer refuse to pay?
Yes, most often when something material wasn't disclosed, like a health condition, smoking, or real income. Answer every question truthfully even where it raises your premium. A slightly higher premium is far better than a rejected claim.
Is my employer's life cover enough?
Almost never, and it ends when the job does. Group cover is usually a small multiple of salary and disappears exactly when you change roles or are let go. Treat it as a bonus on top of your own policy, not a replacement for one.
How long should the term be?
Long enough to cover the years people depend on you, typically until your loans are cleared and your children are earning. Many people cover to around age 60. Paying for cover well past the point anyone needs it is wasted premium.