Term insurance

The only product that does one job properly

Term insurance pays a lump sum to your family if you die during the policy term. If you survive it, you get nothing back. That is the entire design, and the apparent unfairness of it is precisely what makes it work: because the insurer is not managing a savings pot on your behalf, almost the whole premium buys risk cover. The sum assured per rupee of premium is many times what any savings-linked policy can offer.

The question term insurance answers is narrow and brutal: if your income stopped tomorrow, could the people who depend on it continue? Not indefinitely comfortable — just able to keep the home, finish the education, service or clear the loan, and not have to reorganise their lives in the worst month of their existence.

If nobody depends on your income, you probably do not need it. If someone does, almost nothing else in a financial plan matters more, and it should be in place before the investing conversation begins.

How much cover

Common practice is a multiple of annual income, often somewhere between ten and fifteen times. It is a serviceable starting point but it ignores your actual circumstances, and a better calculation is to add up what the money has to do:

• Income replacement — enough that the family can draw a living from the corpus for the years until dependants are self-supporting, remembering that inflation keeps working.
• Outstanding liabilities — the home loan above all, plus any other borrowing including guarantees you have given.
• Goals still to be funded — children’s education and similar commitments, which do not disappear because you have.
• Less existing assets that are genuinely available for this purpose, and less any employer-provided cover, which ends the day the job does.

On the term itself, the instinct to insure to ninety is usually wrong. Cover is needed while others depend on you. Once the loan is cleared and the children are earning, the purpose has expired, and paying for cover beyond that point is funding an inheritance through an expensive vehicle. Cover to around your expected retirement is the common answer.

Disclosure decides whether the claim gets paid

Almost every distressing term insurance story traces back to the proposal form rather than to the insurer. Undisclosed medical conditions, understated tobacco or alcohol use, inflated income, an omitted existing policy — each gives the insurer grounds to investigate at claim stage, which is the one moment your family cannot absorb a dispute.

Disclose everything, including things you think are minor or embarrassing. A declared condition may mean a higher premium or an exclusion; an undeclared one may mean no payout at all. If you smoke, say so. The premium difference is real, and it is far smaller than the cost of a repudiated claim.

Section 45 of the Insurance Act provides meaningful protection here: after three years from commencement, a policy generally cannot be called into question, except on grounds of fraud. That three-year clock is another reason to buy early rather than eventually.

Variants and riders

Return of premium policies refund your premiums if you survive. They feel appealing and they cost substantially more than plain term for the same cover, because the refund is funded by you. For most people the honest comparison is plain term plus investing the difference — but if the alternative is not buying cover at all because “the money is wasted”, the psychological argument has some force.

Increasing cover options step the sum assured up over time, which suits a young earner whose responsibilities are still growing.

Riders worth considering: waiver of premium, which keeps the policy alive if you become disabled and cannot pay; accidental death benefit; permanent disability cover, which addresses the scenario term insurance does not; and critical illness, though a standalone health and critical illness policy may serve better.

Tax and nomination

Premium paid qualifies for deduction under Section 80C, subject to that section’s limit and conditions, and available under the old regime. Death proceeds are ordinarily exempt under Section 10(10D), subject to its conditions. Both positions depend on your own facts — confirm with your chartered accountant.

Two administrative points that matter more than they sound. Keep the nomination current, and understand that a beneficial nominee under the Insurance Act has stronger standing than a nominee who is merely a collector of funds. And make sure your family knows the policy exists — a claim nobody knows to make is the commonest way cover is wasted. Keep a single document listing your policies where they can find it.

How Rytvae helps

We size cover against what your family would actually need rather than a standard multiple, make sure disclosure is complete so the claim is not contestable, and place it through our IRDAI-regulated partners. See also life insurance plans and health and family floater cover.

Frequently asked questions