The Harsh Reality: What Happens When the Breadwinner is Gone?
Imagine this: A family with a home loan of ₹50 lakh, children's education expenses of ₹1 crore in the future, and monthly expenses of ₹50,000. If the earning member suddenly passes away, how will the family manage? This is where term insurance becomes the financial superhero your family desperately needs but hopes never to use.
What is Term Insurance?
Term insurance is pure life insurance—no frills, no investment component, just protection. If you die during the policy term, your family receives the entire sum assured. If you survive, you get nothing back. And that's exactly why it's brilliant.
Why "Getting Nothing Back" is Actually Perfect:
- Premiums are 10-15 times cheaper than traditional plans
- You get 10-20 times higher coverage for same premium
- Pure protection without investment confusion
- Use saved money for better investments
Term Insurance vs Traditional Life Insurance: The Eye-Opening Comparison
Example: 35-year-old male, non-smoker, ₹1 crore coverage, 30-year policy
Term Insurance:
- Annual Premium: ₹12,000 - ₹15,000
- Coverage: ₹1 crore
- Total Premium (30 years): ₹3.6 - 4.5 lakh
- Maturity Benefit: ₹0 (if you survive)
- Family Gets (if you die): ₹1 crore
Traditional Endowment Plan:
- Annual Premium: ₹1,20,000 - 1,50,000
- Coverage: ₹1 crore
- Total Premium (30 years): ₹36 - 45 lakh
- Maturity Benefit: ₹40-50 lakh (5-6% returns)
- Family Gets (if you die): ₹1 crore
Better Strategy:
- Buy term insurance: ₹15,000/year
- Invest difference (₹1,35,000) in mutual funds at 12% return
- After 30 years: ₹4.5 crore corpus
- Coverage during earning years: ₹1 crore
- You Win by: ₹4 crore!
Who Needs Term Insurance?
Absolutely Essential If You Are:
- The Primary Breadwinner
- Family depends on your income
- Spouse is homemaker or earns less
- Need to replace income for 20-30 years
- Have Dependents
- Children's education and marriage
- Aging parents' healthcare
- Spouse's financial security
- Have Outstanding Debts
- Home loan (₹30-70 lakh typical)
- Car loan, personal loan
- Business loans
- Young and Healthy
- Premiums increase 8-15% every 5 years of age
- Health issues = higher premiums or rejection
- Lock-in low rates early
- Earning Member of Family
- Even if spouse also works, both need coverage
- Loss of one income significantly impacts family
May Not Be Critical If You Are:
- Single with no dependents and no debt
- Retired with sufficient corpus
- Financially independent (passive income > expenses)
How Much Term Insurance Coverage Do You Need?
Method 1: The 10X Rule (Quick Estimate)
Coverage = 10-15 times your annual income
- Annual income ₹10 lakh → Coverage ₹1-1.5 crore
- Annual income ₹20 lakh → Coverage ₹2-3 crore
Method 2: Human Life Value (HLV) Approach (More Accurate)
Formula: (Annual Income × Remaining Working Years) - (Current Savings + Investments)
Example:
- Current age: 30 years
- Retirement age: 60 years
- Annual income: ₹15 lakh
- Remaining working years: 30
- HLV = ₹15L × 30 = ₹4.5 crore
- Minus current investments: ₹20 lakh
- Required Coverage: ₹4.3 crore
Method 3: Need-Based Calculation (Most Comprehensive)
Add up all future financial needs:
- Outstanding Loans
- Home loan: ₹40 lakh
- Car loan: ₹5 lakh
- Personal loan: ₹3 lakh
- Subtotal: ₹48 lakh
- Children's Education
- Child 1 (age 5): ₹50 lakh (engineering at 18)
- Child 2 (age 2): ₹60 lakh (adjusted for inflation)
- Subtotal: ₹1.1 crore
- Children's Marriage
- ₹25 lakh × 2 children
- Subtotal: ₹50 lakh
- Family Living Expenses
- Monthly expenses: ₹50,000
- Annual: ₹6 lakh
- For 25 years: ₹1.5 crore
- Subtotal: ₹1.5 crore
- Emergency Fund
- 6-12 months expenses: ₹5 lakh
- Total Needs: ₹3.53 crore
- Minus Existing Investments: ₹25 lakh
- Required Coverage: ₹3.28 crore (round to ₹3.5 crore)
Key Features to Look For in Term Insurance
1. Claim Settlement Ratio (CSR)
- Percentage of claims paid by insurer
- Look for CSR above 95%
- Check last 3 years' data
- Available on IRDAI website
2. Payout Options
- Lump Sum: Entire amount at once (default)
- Income Benefit: Monthly/annual payments over years
- Combination: Part lump sum + part income (recommended)
Example: ₹1 crore coverage = ₹50 lakh lump sum + ₹50,000/month for 20 years
3. Riders (Add-ons) - Optional but Valuable
- Critical Illness Rider
- Lump sum on diagnosis of 30-40 critical illnesses
- Cancer, heart attack, stroke, kidney failure, etc.
- Use for treatment or income replacement
- Cost: ₹1,000-3,000/year for ₹25 lakh coverage
- Accidental Death Benefit
- Additional payout if death by accident
- Usually doubles the coverage
- Cost: ₹500-1,500/year
- Accidental Total & Permanent Disability
- Lump sum + waiver of future premiums
- If accident causes permanent disability
- Waiver of Premium
- Premiums waived on critical illness/disability
- Coverage continues without paying
4. Policy Term
- Should cover till retirement (typically 60-65 years)
- 30-year-old should buy 30-year term
- Or until financial goals are achieved
5. Premium Payment Term
Options:
- Regular Pay: Pay throughout policy term (lowest annual premium)
- Limited Pay: Pay for 10-15 years, coverage for 30+ years (higher annual premium)
- Single Pay: One-time payment (highest upfront cost)
Recommendation: Regular pay for most people (flexibility to stop if needed)
Online vs Offline Term Insurance: What's Better?
Online Term Insurance
Advantages:
- 30-40% cheaper (no agent commission)
- Instant quotes and comparison
- Quick issuance (often same day)
- Easy process from home
Disadvantages:
- No personal guidance
- Must understand features yourself
- Claim filing: self-managed
Offline (Through Agent)
Advantages:
- Personal guidance in selecting plan
- Help with documentation
- Agent assists in claim process
Disadvantages:
- 15-30% higher premium (agent commission)
- May push higher-commission products
- Slower process
Best Approach: Research online, compare plans, then buy online for better rates. Inbest advisors can guide you through selection at competitive rates.
Common Myths About Term Insurance - Busted!
Myth 1: "I'll Get Nothing Back, So It's a Waste"
Reality: That's the point! You're paying for protection, not investment. Would you say car insurance is waste because you didn't have an accident?
Myth 2: "My Company Gives Me Life Insurance"
Reality: Company insurance is typically 3-5 times salary (insufficient) and ends when you leave/retire. You need personal term insurance.
Myth 3: "Claims Are Never Settled"
Reality: Top insurers settle 95-99% of claims. Rejection happens for non-disclosure of health issues or fraudulent claims.
Myth 4: "I'm Young and Healthy, I'll Buy Later"
Reality: Premiums increase 8-15% every 5 years. A 25-year-old pays ₹8,000/year; 35-year-old pays ₹15,000 for same coverage. Buy early, save lakhs over policy term.
Myth 5: "Single People Don't Need Term Insurance"
Reality: If your parents depend on you or you have loans, you need it. Plus, premiums are lowest when single and young.
Tax Benefits on Term Insurance
- Section 80C: Premium paid is deductible up to ₹1.5 lakh
- Section 10(10D): Death benefit to nominee is completely tax-free
- Tax Saving: Up to ₹46,800/year at 30% tax bracket
Example: ₹15,000 annual premium saves ₹4,680 in tax, effective cost = ₹10,320/year
The Term Insurance Purchase Process
Step 1: Calculate Required Coverage
Use HLV or need-based method (detailed above)
Step 2: Compare Plans Online
- Check multiple insurers' quotes
- Compare claim settlement ratios
- Read policy terms carefully
Step 3: Medical Tests (If Required)
- Coverage above ₹50 lakh usually needs medical
- Tests done at home or lab (insurer arranges)
- Basic: BP, sugar, cholesterol, ECG, urine test
- Results in 3-5 days
Step 4: Be 100% Honest in Proposal Form
Critical: Disclose all health issues, even minor ones
- Past illnesses and surgeries
- Current medications
- Tobacco/alcohol use
- Family medical history
- Dangerous hobbies (racing, mountaineering)
Why: Non-disclosure = claim rejection. Better to pay slightly higher premium than risk claim denial.
Step 5: Policy Issuance
- Online: 1-7 days
- With medical tests: 15-30 days
- Review policy document carefully
- Check all details are correct
When Should You Review/Increase Your Coverage?
- Marriage: Spouse is now dependent
- Child Birth: Increased responsibilities (₹1-1.5 crore more)
- Salary Hike: Lifestyle increase = higher coverage needed
- New Loan: Home/business loan = add loan amount to coverage
- Business Ownership: Business liabilities need protection
- Every 5 Years: General review and inflation adjustment
Red Flags: What NOT to Do
- Don't Buy Based Only on Premium: Cheapest may have poor claim settlement
- Don't Hide Health Issues: Claim will be rejected
- Don't Buy Return of Premium Plans: 30-40% higher premiums for poor returns
- Don't Mix Insurance with Investment: Keep them separate
- Don't Delay: Every year's delay increases premium significantly
- Don't Buy Insufficient Coverage: ₹10-20 lakh is too low for most families
- Don't Ignore Nominee Details: Keep them updated
Conclusion: The Best Time is NOW
Term insurance is the most powerful financial tool to protect your family's future. For just ₹30-50 per day (less than a cup of coffee), you can ensure your family's dreams don't die with you.
Remember:
- Buy early while premiums are low
- Get adequate coverage (don't under-insure)
- Be honest in application
- Review coverage at life milestones
- Choose insurer with high claim settlement ratio
Don't wait for a wake-up call. Your family's financial security is too important to leave to chance. Get term insurance today—because you can't predict the future, but you can protect it.
Need help choosing the right term insurance plan? Contact Inbest's insurance advisors for personalized recommendations based on your family's unique needs and financial situation.
