Term insurance pays your family a lump sum if you die during the policy period. That is it — no investment, no maturity benefit, no bonus. Pure protection at the lowest possible cost. And it is the foundation that every other financial plan rests on.
How much cover do you need?
The income replacement method is the most reliable: your annual take-home income × number of working years remaining × a factor for inflation. A simpler rule of thumb: 15–20× your annual take-home salary. A 30-year-old earning ₹12 lakh annually needs ₹1.8 crore to ₹2.4 crore of cover at minimum. Add your outstanding loans (home loan, car loan, education loan) on top of that.
How long should the term be?
The policy should cover you until your financial obligations are discharged. For most salaried Indians, that means until retirement (age 60 or 65). If you are 30, opt for a 30-35 year term. If you are 40, a 20-25 year term. Avoid very short terms (10–15 years) unless you have exceptional wealth or near-zero dependents.
How to pick an insurer
Claim Settlement Ratio (CSR) is the most commonly cited metric — it measures the percentage of claims an insurer pays. Any CSR above 97% is considered good; most reputed insurers (LIC, HDFC Life, Max Life, ICICI Prudential, Tata AIA) meet this threshold. Also check solvency ratio (minimum 1.5 required by IRDAI, higher is safer) and the insurer's total complaint ratio.
Riders worth adding
- Accidental death benefit: If you work in a high-travel or high-risk job, adding 1–2× base sum assured for accidental death is cheap and meaningful.
- Critical illness rider: Pays a lump sum on diagnosis of major illnesses (cancer, heart attack, stroke). Useful if you do not have a standalone critical illness plan.
- Waiver of premium: Waives future premiums if you become permanently disabled — underrated and often very cheap.
What to avoid
Do not buy a return-of-premium (TROP) plan. The premium is 2–3× higher than a plain term plan, and the "return" you get at maturity is just your own money back without interest — a terrible deal. Buy term, invest the difference.