Term insurance is the least exciting financial product you will ever buy. You pay a modest premium every year, you hope never to use it, and if you do, it's your family who will. That is exactly why it is worth getting right.
It pays a fixed sum to your nominee if you die during the policy term. If you outlive the term, nothing is paid. There is no maturity benefit and no "return", which is the reason it costs a fraction of endowment or money-back plans that mix insurance with saving.
Who needs one
Anyone whose death would leave someone in financial trouble: a spouse who relies on your income, children, parents you support, or a co-borrower on your home loan. If nobody depends on your income, you may not need one yet. The moment that changes (marriage, a child, a loan), it is time.
How much cover
You will see "10 to 15 times your annual income" quoted everywhere. It's a fair starting point, not an answer. A better method works from needs:
- Add your debts: home loan, car loan, any personal loans.
- Add future income your family would miss: annual household expenses multiplied by the years your dependents would need support. Discount for inflation and for the returns the lump sum can earn.
- Add specific goals: children's education and marriage, if you want them funded.
- Subtract what you already have: investments, existing life cover, a spouse's own income.
Rohan, 33, earns ₹18 lakh a year. He has a ₹40 lakh home loan, a two-year-old child, and a wife who works part-time. Loan ₹40 lakh, plus ₹60 lakh for the child's education and early life, plus family expenses of about ₹6 lakh a year for 15 years (~₹90 lakh before discounting), less ₹20 lakh of existing investments. That points to a cover somewhere around ₹1.5 to ₹2 crore, close to eight to eleven times his income. A bigger cover is reasonable if he wants more margin.
How long the policy should run
Pick a term that takes you to the age when you expect to stop working, usually 60 to 65. Cover that ends at 50 leaves you uninsured exactly when health problems get costlier to insure. Premiums are fixed for the term when you buy, so the earlier you buy, the cheaper it is.
Choosing an insurer
All insurers are regulated by IRDAI, so you are choosing between solid options, not between safe and unsafe. These are the things to compare:
| What to check | Why it matters |
|---|---|
| Claim settlement ratio | Share of death claims paid in a year. Published in IRDAI's annual report and in insurers' public disclosures. Look at several years, not one. |
| Amount settled ratio | Pays attention to rupee value, not just the number of claims. Large claims get more scrutiny. |
| Claims repudiated and why | Often reveals whether rejections were mostly non-disclosure. |
| Solvency ratio | A measure of whether the insurer holds enough capital against its obligations. |
| Premium for the same cover | Get quotes for the same age, term, cover and smoking status from several insurers. |
| Customer complaints | IRDAI publishes complaint data for each insurer. |
The differences between good insurers are small. What decides most claims isn't the brand; it's whether you told the truth when you bought the policy.
The disclosure problem
Most rejected claims trace back to something the buyer left out or fudged on the proposal form: smoking, drinking, a past surgery, a health condition, or income. It's tempting to round things down to get a better premium. Don't. If you die and the insurer finds the mismatch, your family could receive nothing.
The law offers some protection. Under Section 45 of the Insurance Act, after three years from the policy's start, an insurer can generally not challenge it on the grounds of misstatement, except in cases of proven fraud. That is not a licence to be careless. In the first three years, and in any case of fraud, the insurer can and does investigate.
Riders and add-ons
- Accidental death benefit: cheap and sometimes useful, but it overlaps with your base cover.
- Critical illness: can be a poor fit inside a term plan. A separate, good health policy and a standalone critical illness policy often serve better.
- Waiver of premium: keeps the policy alive if you can't work because of disability. Worth considering.
- Return of premium plans: you get premiums back at the end, but at a much higher price. The money would usually do more elsewhere.
Mistakes that cost families the most
- Relying only on employer group cover. It ends when you leave the job.
- Buying an endowment plan "for insurance". The cover is tiny for what you pay.
- Not telling your family the policy exists, or where the documents are.
- Forgetting to update the nominee after marriage or a child's birth.
- Letting it lapse. Set the premium on auto-pay and note the renewal date.
Insurance rules, taxes and insurer statistics change every year. Use the latest IRDAI publications and the policy document itself to verify any number before you buy. Premium deductions under Section 80C generally apply only in the old tax regime.
This article is for general education and is not personal advice. Found a mistake or an out-of-date number? Tell us and we will check it.