Term Insurance is one of the most underrated financial products in India. And honestly it's a must have if someone is financially dependent on you.
In this article I will simplify Term Insurance in the easiest way possible. No jargon. No confusion.
Also in between I will reveal which term plan I personally have.
Let's get started👇
1) First things first. What is Term Insurance?
Term insurance is a pure life insurance plan. You pay a fixed premium for a fixed period.
If you die during the policy term, the company pays the Sum Assured to your nominee. That's it!
Just pure protection for your family.
2) Why Term Insurance matters?
Term insurance is not about returns. It's about protection.
If something happens to you, the payout helps your family manage Education, loans, monthly expenses, and liabilities.
If someone depends on your income, term insurance is a must.
3) How much cover do you need?
Once you decide to buy term insurance, the next question is simple.
How much cover is enough?
It depends on your dependents, income, lifestyle, loans, and future goals.
A common thumb rule is, take 12x to 15x of your annual income.
If your Income is ₹10L/ year then cover should be ₹1.2Cr to ₹1.5Cr
4) Who should buy Term Insurance?
Buy it if someone depends on your income like spouse, kids, parents.
You may skip it if nobody depends on you financially, or your net worth is high enough to take care of your family.
5) Key metrics to check before buying a Term Plan
This is where most people make a mistake.
Many people buy the cheapest plan available, but lowest premium doesn't always mean best plan.
Don't just compare premium. Compare the company's ability to pay claims smoothly.
Here are the key things you should check before selecting any insurer.
A) Claim Settlement Ratio
It shows how many claims the company settles. Don't judge by 1 year data. Check the 4 to 5 year trend.
Max Life has been mostly above 99 percent in last 5 years. Even during Covid it was above 99 percent.
B) Amount Settlement Ratio
This is very important and often ignored.
It tells, Out of the total claim amount, what percentage is actually paid out by the company.
Some companies may settle many claims but the total payout ratio matters too. So compare Amount Settlement Ratio across major insurers.
In above image you can clearly see the difference.
C) Solvency Ratio
This is an IRDAI requirement.
Insurance companies must maintain solvency of at least 1.5x of liabilities. A higher solvency ratio generally indicates better financial strength. Most major Indian life insurers are comfortably above the minimum requirement.
Final step
After doing this exercise, you’ll have a shortlist of good insurers. Then compare premium and pick the best one.
6) Riders. Add or avoid?
Riders are add ons like critical illness, accidental cover, and waiver of premium.
IMO, keep term insurance simple and avoid riders. Riders add extra conditions and exclusions. For health, buy separate health insurance.
For accidents, take a separate accident cover if needed.
Pure term plan works best!!
7) Duration. Till what age?
Term insurance is needed mainly during your earning years. So taking it till 60 to 65 is usually enough, based on your retirement plan.
Premium gets locked when you buy, it won’t increase later. That's why buying early is cheaper.
8) My Term Plan
I have Max Life term insurance till age 65.
Bought online in 2016. Going well so far.
Not a recommendation. Just sharing what I use.
9) Most important tip
Disclose everything honestly while buying.
Medical history, smoking, past conditions, lifestyle details.
Even if premium goes up, disclose it.
Because wrong details can lead to claim rejection later.
Final Thoughts
Term insurance is not for returns. It's for peace of mind.
It ensures that if life takes an unexpected turn, your family won't suffer financially.
If you already have term insurance, great. If you don't and someone depends on you, this is your sign to act.
If you found this useful, do share it.
Follow for more simple personal finance content @BaluGorade
Thanks for reading. 🙏