Life Insurance 360

Understanding Term Insurance

Imagine if you could create a financial version of yourself—one that would continue to provide for your family even if you were no longer around. While no product can truly replace you, term insurance comes close in a financial sense. It ensures that in the unfortunate event of your passing, your loved ones receive a substantial payout—₹1 crore, ₹5 crore, or even more—so they don’t have to struggle financially.

Here’s how it works: You pay a small annual premium to the insurance company, and in return, they promise to provide a lump sum to your beneficiaries if something happens to you. This payout is designed to replace your lost income, covering expenses like household costs, education, and loans. As long as you have disclosed accurate information while purchasing the policy, the insurer is legally required to pay out the full sum. Even if they suspect fraud, they only have three years to investigate; after that, they must honor the claim, no questions asked.

However, there are a few exceptions. If the policyholder commits suicide within one year of purchasing the plan, or if the death occurs while engaging in criminal activity, the insurer may not pay the full amount. But in most other cases, term insurance provides a reliable financial safety net.

While the concept is simple, choosing the right term insurance plan involves considering several key factors. In the next section, we’ll explore what you need to know before buying a term plan.

How Much Term Insurance Do You Need?

The key question when buying a term plan is: How much coverage is enough?

The goal is simple—your term insurance should financially replace you, ensuring your family can maintain their lifestyle even in your absence. A good starting point is your monthly expenses. If you spend ₹50,000 per month, that’s ₹6 lakh per year. To generate that kind of income passively, your family would need a lump sum that yields similar returns.

Let’s consider a conservative investment like a fixed deposit. At a 6% annual return, a ₹1 crore payout would generate ₹6 lakh per year—enough to sustain expenses, at least in the short term. But factor in inflation, and this amount may not be sufficient over time. A ₹2 crore cover would generate ₹12 lakh annually, providing better financial security for the next decade or so.

Beyond expenses, consider outstanding loans, children’s education, and other financial commitments. If you have significant liabilities, you may need a higher cover to ensure your family isn't burdened by debt. The right coverage should generate enough cash flow for household expenses, EMIs, and a financial cushion for the future.

Use our free term insurance calculator to determine the ideal coverage for your needs.

Choosing the Right Policy Duration

With term insurance, you pay premiums either until you pass away or until the policy expires. Since you must choose the duration at the time of purchase—and can’t change it later—this decision is crucial.

The primary goal of term insurance is to provide financial security when your family needs it most. When you're young, your dependents might not have enough savings to rely on. But as you grow older, things change. By the time you’re 60, your kids may be financially independent, your spouse could have a retirement fund, and your need for life insurance might diminish.

That’s why many people set their policy duration to last until they turn 60. However, insurers understand life expectancy in India is around 70, so if you extend coverage beyond that, expect premiums to rise significantly. The ideal range for most people falls between 60 and 70 years, balancing affordability with adequate protection.

Beyond duration, you can enhance your policy with useful add-ons, or riders, to make your financial safety net even stronger. One of the best options? The life stage benefit.

Why Life Stage Benefit Matters

Term insurance is rigid—once you set your coverage, it remains unchanged for the policy's duration. If you bought a ₹1 Crore policy six years ago, it stays ₹1 Crore, even if your financial responsibilities grow. This can be a problem when major life events, like marriage or having children, increase your financial obligations.

That’s where the life stage benefit comes in. This rider allows you to increase your coverage at key milestones, such as getting married or having kids, without buying a new policy. It provides the flexibility you need to keep your insurance relevant as your responsibilities evolve.

If you expect to have more dependents in the future, opting for this benefit is a smart move.

Waiver of Premiums: A Safety Net

Imagine facing a life-altering disability that forces you to quit your job. With income gone, maintaining your financial commitments—especially insurance premiums—becomes a struggle. You might even consider dropping your term policy altogether.

But what if you didn’t have to? Some insurers offer a waiver of premium rider, allowing you to keep your policy without paying further premiums if you become permanently disabled. For a small additional fee, this rider ensures your family remains protected, even if you can’t work anymore.

Beyond disability, many policies also offer a critical illness waiver, covering conditions like cancer. If diagnosed, you’d no longer have to pay premiums, yet your coverage remains intact.

While often overlooked, this rider can be a financial lifesaver in tough times—something worth considering when choosing your policy.

Accidental Death Benefit: Extra Protection

Roads can be unpredictable, and accidents claim lives every few minutes. If you’re concerned about this risk, an accidental death benefit rider could be a smart addition to your term insurance.

This rider ensures that if you die in an accident, your family receives an additional payout—say, ₹1 Crore on top of your ₹2 Crore base cover. While these figures are just examples, they highlight how this benefit can provide extra financial security.

For a small additional premium, this rider offers peace of mind. However, it should never be a substitute for sufficient base coverage. Think of it as an added layer of protection rather than a replacement.

Critical Illness Benefit: Financial Support in Tough Times

A critical illness like cancer can upend your life. Even if you have a strong health insurance policy, medical bills aren’t the only concern—losing your ability to work can strain your finances.

That’s where a Critical Illness Benefit helps. If diagnosed with a covered illness, your insurer provides a lump sum payout—₹10 lakhs, ₹50 lakhs, or even ₹1 Crore—depending on your chosen coverage. This cash can help replace lost income and support your family during difficult times.

However, note that most policies deduct this payout from your total term cover. So, while this rider offers immense relief, it’s essential to plan your coverage accordingly.

Should You Opt for a Terminal Illness Benefit?

A terminal illness diagnosis can be devastating—not just emotionally but also financially. When a doctor tells you that you only have six months to live, the last thing you want is to worry about money. Instead, you’d want to focus on availing the best possible treatment, be it in the country or abroad. Unfortunately, high-quality medical care comes at an exorbitant cost, which can drain your savings and put a financial strain on your family.

This is where a Terminal Illness Benefit can provide some relief. If you opt for this rider, your insurer may offer an early payout of your entire term insurance cover upon diagnosis of a terminal illness. Essentially, they provide you with the money upfront, assuming you won’t need it after a few months. This lump sum amount can help you afford top-tier medical treatments, seek second opinions, and even take care of pending financial matters.

And here’s the silver lining—if you outlive the six-month prognosis, the insurer won’t ask you to return the money. The payout is yours to use as needed, whether for medical expenses, alternative treatments, or even securing your family’s future while you’re still around.

However, there’s a caveat. Terminal illness claims require strict medical certification, and not all insurers readily approve them. Doctors must provide concrete evidence that your condition is incurable and that you have a limited time left. Even then, insurers might conduct their own assessments before approving the payout.

So, while a Terminal Illness Benefit can offer invaluable financial support during a medical crisis, it’s essential to understand the approval process and choose an insurer with transparent claim policies before opting for this rider.

Can You Beat Inflation with an Increasing Cover?

Term insurance is a simple concept—you select a coverage amount, the insurer guarantees that payout in the event of your death, and you pay annual premiums to maintain the policy. But here’s the catch: the value of money erodes over time. What seems like a substantial sum today might be inadequate 15 or 20 years down the line, thanks to inflation.

Consider this: A ₹1 Crore cover might seem like a strong financial cushion right now, but if inflation averages 6% annually, its real value could be nearly halved in just 12 years. By the time your family actually needs the money, it might not provide the same level of security you had originally envisioned.

To counteract this, some insurers offer an Increasing Cover benefit. With this feature, your sum insured rises by a fixed percentage each year—typically 5% or 10%—ensuring that your payout keeps pace with inflation. This way, your family won’t be left struggling with an outdated sum that no longer covers their financial needs.

However, there’s a trade-off. Policies with an increasing cover come at a steep price—premiums can be 50% to 60% higher than a standard term plan with a fixed sum insured. And while the benefit of inflation protection is undeniable, the cost might not always be justifiable.

So what’s the alternative? Instead of opting for an increasing cover, you could simply calculate your future financial needs today and choose a sufficiently higher sum insured from the start. For instance, if you determine that your family would need ₹2 Crores in today’s terms, but you’re planning for the next 20 years, you might opt for a ₹3-4 Crore cover instead.

Ultimately, the decision boils down to personal preference and financial flexibility. If you’re comfortable with higher premiums in exchange for automatic inflation adjustment, an increasing cover could be a smart choice. But if you prefer a one-time calculation to secure a larger cover upfront, you can save on premiums while still protecting your family’s future purchasing power.

Should You Decrease Your Cover as You Grow Older?

Remember how we discussed term insurance as a financial safety net—one that steps in to replace your income when you're no longer around? Well, as time passes, the need for that safety net may not be as crucial as it once was.

Here’s why:
✅ Your dependents become financially independent – Your kids grow up, complete their education, and start earning.
✅ Your liabilities shrink – That home loan? Paid off. Other major debts? Cleared or significantly reduced.
✅ Your savings and investments grow – Over the years, your retirement corpus, real estate, and other assets might accumulate enough wealth to act as a financial cushion for your family.

At this stage, having a ₹2 Crore cover may not make sense anymore because your family might not need such a large payout. So some insurers offer the option to gradually reduce your sum insured—which in turn lowers your premium payments.

For instance, you might start with a ₹2 Crore cover in your 30s when your financial obligations are high. But by the time you hit 55 or 60, your insurer might let you reduce it to ₹1 Crore or less, depending on your situation. This way, you save on premiums while still keeping enough coverage for any remaining responsibilities.

Should You Opt for a Decreasing Cover?

While this feature sounds appealing, there’s a risk: future financial needs are unpredictable. Maybe you plan to retire early, or you take on new financial responsibilities (like supporting aging parents or launching a business). If you opt for a decreasing cover, you lose the flexibility of having a high payout when you may still need it.

So if you’re considering this option, ask yourself:
🔹 Will my savings truly be enough to sustain my family later?
🔹 Do I have zero long-term liabilities (home loans, parental care, etc.)?
🔹 Am I absolutely sure I won’t need a big payout in my later years?

If you can answer "yes" with confidence, a decreasing cover might be a good way to save on premiums. Otherwise, it may be safer to keep your coverage intact. Because in financial planning, flexibility is everything.