Term insurance

Term insurance is the simplest kind of life cover. You pay a small premium, and if you die during the policy term, your family gets the sum assured. It has no investment part, which is why it is cheap.

Why it is so cheap

A term plan pays out only if you die during the term. If you outlive it, nothing comes back, and that is exactly what makes it affordable: the insurer is covering a pure risk, not managing a savings pot. Because most policyholders survive the term, the cost of covering each one is low, so a healthy young person can often get ₹1 crore of cover for a few hundred rupees a month. The younger and healthier you buy, the lower the premium, and it is locked in for the whole term.

How much cover, and for how long

A common rule of thumb is cover of about 10 to 15 times your yearly income, enough to replace your earnings and clear big debts like a home loan, adjusted for your family’s needs and existing savings. The term should run at least until your dependents are financially independent or your major loans are paid off. Work out a figure for your own case in how much term cover do you need.

Why “nothing back” is the point

People often resist a plan that returns nothing if they survive, but that is a feature, not a flaw. You are buying protection, not a return. Bundling investment into insurance, as an endowment plan or ULIP does, usually means smaller cover and lower returns than buying term cover and investing the difference separately. For a homemaker’s cover and riders, see term insurance for homemakers.