Buying Term Insurance in India? Read This First

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Let’s be honest. Nobody enjoys thinking about term insurance. It means thinking about dying, and then paying money every year for something you hope your family never uses. So most of us put it off. “I’m young, I’m healthy, I’ll do it next year.”

The problem is that next year the premium is higher. And the year after that, maybe you’ve picked up high BP or a sugar problem, and suddenly the plan costs a lot more, or the insurer says no.

This guide is for people who want to get it done properly, once. No jargon if I can avoid it, and no product pushing. Just how term insurance works, how much you actually need, and the mistakes that get claims rejected.

So what exactly is term insurance?

It’s the simplest kind of life insurance there is. You pay a premium for a fixed number of years, say till you’re 60. If you die during that time, your nominee gets a fixed amount, called the sum assured. If you survive, you get nothing back in a regular plan.

That’s it. No bonus, no maturity amount, no “returns”.

And that’s exactly why it’s so cheap. A healthy 30-year-old who doesn’t smoke can usually get ₹1 crore of cover for somewhere around ₹10,000 to ₹15,000 a year. The exact number depends on the insurer, the term, and your health. Try getting ₹1 crore of cover through an endowment policy and you’ll see premiums several times higher. Most families simply can’t afford proper cover that way.

Think of it like this: term insurance replaces your income if you’re not around. That’s its only job. It’s not supposed to make you rich.

Do you actually need term insurance?

Ask yourself one question. If you died tomorrow, would someone’s life get financially harder?

If the answer is yes, you need term insurance. That usually means you’re married, or you have kids, or your parents depend on you, or you have a home loan that your family would be stuck repaying. Self-employed people especially, because there’s usually no company group cover to fall back on.

If you’re single, nobody depends on your income, and you don’t have loans that would land on your family, you can probably skip it for now. Same for retired people whose kids are settled. Remember, this is about protecting other people, not you.

Why that LIC-type policy your uncle sold you isn’t enough

Before choosing a policy, check these seven things to read before paying an insurance premium. It also helps to understand the difference between saving and investing when planning separately for protection and future goals.

Almost every Indian family has at least one endowment or money-back policy, often bought because a relative was an agent. These mix insurance with savings. The trouble is, they don’t do either job well.

The cover is usually small. Someone paying ₹50,000 a year might have a sum assured of just ₹5 to ₹10 lakh. That runs out in a few years if the family needs it. The returns are also modest, often somewhere around 4% to 6% a year over the long run, which barely beats inflation. And your money is stuck for 15 to 25 years. Surrender early and you lose a big chunk.

Most planners suggest something simple: buy term for protection, and invest the rest separately in PPF, EPF or mutual funds. You end up with much bigger cover and usually more wealth too.

One caution though. If you already hold a traditional policy, don’t surrender it in a hurry. Sometimes making it “paid-up” (you stop paying, and keep a reduced benefit) is better. Sometimes, if only a few years are left, it makes sense to just finish it. Do the maths first.

Term plan vs endowment policy comparison

The simple rule is: buy term insurance for protection, and invest the rest in SIPs. For that you’ll need an investing account; Angel One is one option.

How much term insurance cover is enough?

This is where most people go wrong. They pick ₹50 lakh because it sounds like a big number. It usually isn’t.

The quick way

Take 10 to 15 times your yearly income. Earning ₹8 lakh a year? That’s ₹80 lakh to ₹1.2 crore. If you’re young with small kids, go towards the higher end. This rule is easy, but it’s rough. It ignores your loans and your savings.

The better way

Add up what your family would really need:

Your family’s yearly expenses (not counting your own personal spending), multiplied by roughly 20 to 25. That rough multiplier accounts for the money being invested while prices keep rising.
Every loan you have: home, car, personal.
Big future goals like your child’s college fees or marriage.

Then subtract whatever savings and existing cover you already have.

Here’s an example. Rahul is 32 and earns ₹12 lakh a year. His family spends about ₹5 lakh a year, leaving out his own costs. He has a ₹35 lakh home loan, wants ₹25 lakh kept aside for his daughter’s education, and has about ₹8 lakh invested.

What	Amount
Household expenses (₹5 lakh × 22)	₹1.10 crore
Home loan left	₹35 lakh
Daughter’s education	₹25 lakh
Minus current investments	– ₹8 lakh
Cover he needs	about ₹1.62 crore

So Rahul should be looking at ₹1.5 to ₹2 crore. Way more than the ₹50 lakh his gut would have told him.

Till what age?

Your cover should last until nobody depends on your income anymore. For most salaried people, that’s retirement, around 60 to 65. If your youngest child is born when you’re 35, they’ll probably be earning by the time you’re 58 or 60.

You’ll see plans offering cover till 85 or even 99. Unless you have a specific reason, like a child with special needs who’ll need lifelong support, skip it. It pushes the premium up a lot. By retirement you should have enough savings that your family isn’t relying on an insurance payout.

What decides your term insurance premium

Your age matters most. Buy at 28 instead of 38 and the premium can be much lower, and it stays locked for the whole term. That alone is a good reason not to wait.

Smoking is the next big one. Smokers often pay 50% more or even higher. And yes, this includes gutka, chewing tobacco and “just socially” smoking. Insurers count all of it.

Then there’s health: diabetes, BP, heart issues, or being very overweight can push the price up or lead to rejection. Your income and job matter too, because insurers cap cover based on what you earn, and risky jobs like mining or offshore work can cost more.

A few smaller things: women usually pay a little less because they live longer on average, paying yearly is often slightly cheaper than monthly, and bigger cover amounts often work out cheaper per lakh.

Comparing plans: don’t just sort by price

Here’s what I’d look at, roughly in this order.

Claim settlement ratio. This tells you what percentage of death claims an insurer paid in a year. IRDAI publishes it in its annual report. Most big insurers are above 95%, many above 98%. Look at the last few years, not just one good year.

Amount settlement ratio. The claim ratio counts claims, not rupees. An insurer could pay lots of small claims and reject a few big ones. This number shows the value of claims paid. You want an insurer that does well on both.

Complaints. IRDAI also publishes complaints per 10,000 policies. Fewer complaints usually means better service.

Solvency ratio. It shows the insurer’s financial strength. The legal minimum is 1.5. Comfortably above that is reassuring.

Then price. Honestly, paying a few hundred rupees more a year for a reliable insurer is worth it. Your family will be dealing with this company on the worst day of their lives. A smooth claim matters far more than a small saving.

The different types (and which one most people should pick)

Level term is the plain version. Cover stays the same throughout. It’s the cheapest and it’s what most people should buy.

Increasing cover plans raise the sum assured every year to beat inflation. They cost more. A lot of people just buy a slightly bigger level plan instead.

Decreasing cover shrinks over time, often matched to a home loan. Cheaper, but it can leave your family short on everything else.

Return of premium plans give your premiums back if you survive. It sounds great. The catch is the premium can be close to double. If you invested that extra money yourself for 30 years, you’d usually end up with far more. For most people, skip it.

Limited pay means you pay for 10 or 15 years but stay covered for the full term. Total cost is higher. It suits some people who want premiums finished while they’re earning well, but regular pay is usually cheaper overall.

Riders: which extras are worth it?

Insurers will offer you a bunch of add-ons. Some are useful.

The waiver of premium rider is often cheap and genuinely helpful. If you become disabled or get a critical illness, future premiums are waived and the cover continues.

Accidental total and permanent disability is another sensible one. A disability that stops you from working can hit a family harder than a death, financially speaking.

Critical illness riders pay a lump sum if you’re diagnosed with something like cancer or a heart attack. Useful, but compare with a standalone critical illness policy, which may cover more conditions.

Accidental death benefit pays extra if death is due to an accident. It’s cheap, but think about it. Does your family need more money if you die in an accident rather than from an illness? Not really. Better to get enough base cover first.

Many plans also include a terminal illness benefit by default, which pays out early if you’re diagnosed with a terminal illness.

Which term insurance riders are worth buying

Buying term insurance online or through an agent?

Online is usually cheaper because there’s no agent commission. The cover and claim rules are exactly the same. You can also read the policy wording without someone rushing you.

The downside is you handle everything yourself, from medical tests to uploading documents. A good, honest advisor can still help, especially if you have health issues. Just make sure they fill the form with your real answers. More on that next, because it’s the most important part of this whole article.

The proposal form: where most claims go wrong

Most rejected term claims come down to one thing: something wasn’t disclosed. The form asks about your health, habits, income, job and other policies. If you hide something, the insurer can reject the claim later, when your family needs it most.

Be completely honest about smoking and drinking, even occasional. About every illness, surgery, hospital stay and medicine. About family medical history if they ask. About your real income and job. About every other life policy you have. Even hobbies like scuba diving or trekking at high altitudes, if asked.

Yes, disclosing something might raise your premium. That’s fine. Paying a bit more is so much better than paying for 20 years and having your family’s claim rejected.

Under Indian insurance law, once a policy has been running for three years, the insurer generally can’t question it for misstatements, except in cases of proven fraud. But don’t treat that as a loophole. Honesty from day one is what really protects your family.

Medical tests are actually good for you

For bigger cover amounts, insurers usually ask for medical tests, often done at home and paid for by them. Some people go looking for “no medical test” plans to avoid the hassle. I’d do the opposite. Once the insurer has checked you and issued the policy, it’s much harder for them to argue later that you hid a health problem.

Nominee, and something called MWPA

Always add a nominee, and update it after marriage or when kids come along.

If you’re a married man, look into buying the policy under the Married Women’s Property Act. With MWPA, the payout is reserved for your wife and children. Creditors can’t touch it, and neither can other relatives. It’s especially useful if you run a business or have loans. You have to choose it when buying; it usually can’t be added later.

Want to see if the premium saves you tax? Try the Income Tax calculator. It shows old vs new regime side by side.

What about tax on term insurance?

Under the old tax regime, life insurance premiums count towards the ₹1.5 lakh deduction limit (what everyone knows as Section 80C). Under the new regime, which is now the default, you don’t get that deduction. The payout to your nominee is generally tax-free.

Quick note: India’s new Income-tax Act, 2025 came into force from April 2026, and a lot of section numbers changed. So newer documents may show different section numbers. Either way, don’t buy term insurance for tax. Buy it for protection.

Fraudsters call people pretending to be insurance staff, offering ‘bonus’ or ‘refund’. Never pay to get a refund. Report it on cybercrime.gov.in or call 1930.

Mistakes I see people make again and again

Waiting too long is the big one. Every year of delay raises the premium, and a health issue could make cover expensive or impossible.

Relying on company cover is another. Group cover ends when you leave the job, and it’s usually only a few times your salary.

Then there’s buying too little. ₹25 or ₹50 lakh feels like a lot, until you do the maths. Picking return-of-premium plans for the “refund”. Hiding smoking or health history. Letting the policy lapse because you forgot a payment.

And this one’s underrated: not telling your family. Your nominee needs to know the policy exists, which company it’s with, and where the documents are. A policy nobody knows about is useless.

Tell your family where the policy papers are. I keep ours in one document folder with the nominee details on top.

How a term insurance claim actually works

When the policyholder dies, the nominee should inform the insurer as soon as possible. They’ll usually need:

The claim form
Death certificate from the local authority
The policy document or a copy
Nominee’s ID, address proof and bank details
Medical records or discharge summary if the death was due to illness
FIR and post-mortem report if it was an accident

IRDAI sets deadlines for insurers to settle or reject claims, and they have to pay interest if they delay beyond that. If a claim is unfairly rejected, the family can go to the insurer’s grievance cell, then the Insurance Ombudsman (which is free), and after that a consumer court.

A simple buying checklist

Work out your cover using the needs-based method above.
Pick a term that ends around 60 to 65.
Shortlist three or four insurers with strong claim and amount settlement ratios.
Compare premiums for the same cover, term and riders.
Read the policy wording, especially exclusions like the first-year suicide clause.
Fill the form yourself, honestly.
Do the medical tests if asked.
Choose MWPA if it applies, add nominees, and set up auto-pay.
Use the free-look period (currently 30 days) to go through the policy once it arrives.
Tell your family where everything is.

Quick answers to common questions

Can I have two term plans?

Yes. Plenty of people split cover, say ₹1 crore each with two insurers. It spreads the risk and lets you add cover as your income grows. Just disclose your existing policies when you buy the new one.

Can homemakers get term insurance?

Some insurers offer it, usually linked to the spouse’s income and cover. A homemaker’s work, from childcare to running the house, has real economic value. If replacing that would cost your family money, it’s worth considering.

What if I miss a premium?

After the grace period, a regular term plan lapses and the cover stops. There’s no surrender value. Most insurers let you revive it within a certain time, often with fresh health checks.

Is suicide covered?

Most plans don’t pay the full sum if it happens in the first 12 months; they usually refund part of the premiums. After that, it’s generally covered.

I’m an NRI. Can I buy from India?

Many Indian insurers cover NRIs, often cheaper than abroad. Check the rules for your country, how medical tests will be arranged, and whether claims can be paid to nominees in India.

For a clear, Indian take on insurance and money, read Let’s Talk Money by Monika Halan. And for money habits in general, The Psychology of Money.

One last thing

Term insurance is boring. It’ll never show up as a big gain in your portfolio, and if all goes well, your family will never claim it. But it’s the base everything else in your financial life sits on.

Block out a couple of hours this weekend. Work out your number, compare three or four plans, and fill the form honestly. That’s all it takes, and your family is covered for decades.

Buying Term Insurance in India? Read This First

So what exactly is term insurance?

Do you actually need term insurance?

Why that LIC-type policy your uncle sold you isn’t enough