Term insurance is the simplest kind of life cover. You pay a small premium every year, and if you die during the term, your family gets the full cover amount. The hard part is picking the number.
The 10 to 15 times rule, and its limits
You will often hear that cover should be 10 to 15 times your annual income. It is a quick starting point, but it ignores what you still owe, your children's ages and what you have already saved. A 28-year-old with no dependants and a 42-year-old with a house still being paid off and two children can earn the same and need very different cover.
A better method: add up what the family would need
Ask a direct question: if my income stopped tomorrow, how much money would my family need to carry on as they do now? Work it out in four lines.
- Living costs. Yearly household expenses multiplied by the number of years the family would depend on you.
- What you owe. Everything still to be paid off, such as a house or a car.
- Future goals. Children's education and marriage, if you want those funded regardless.
- Less existing money. Subtract savings and investments set aside for the family.
A worked example
Take a 35-year-old whose household spends ₹5,00,000 a year. All figures below are assumed for illustration.
| Item | Amount |
|---|---|
| Living costs, 15 years at ₹5,00,000 | ₹75,00,000 |
| Amount still owed on the house | ₹25,00,000 |
| Child education goal | ₹20,00,000 |
| Less existing savings and investments | minus ₹20,00,000 |
| Cover needed | ₹1,00,00,000 |
That is ₹1 crore. If this person earns ₹12 lakh a year, it is a little over 8 times income, which shows why the thumb rule can mislead in both directions. Inflation also eats into a fixed cover, so some people add a 5% to 10% cushion or review the amount every few years.
Why buying early matters
Premiums depend on your age, health and habits at the time you buy, and they stay the same for the whole term. Waiting five years usually makes the premium noticeably higher, and a health issue in between can raise it further or lead to a refusal. The exact figure differs by insurer, so ask for a quote instead of trusting a rule of thumb.
What to check before you buy
- Term length. Choose a term that runs until you stop depending on your income, often age 60 or beyond.
- Claim settlement record. Ask for the insurer's recent claim settlement ratio and look at how it has moved over the last few years.
- Exact disclosures. Tell the insurer about smoking, drinking, existing illnesses and other policies. Hiding a fact is the most common reason a claim is rejected.
- Riders. Accidental death or critical illness riders cost extra. Add them only if you understand what they pay.
- Premium payment mode. Yearly is usually cheaper than monthly. Set auto-debit so the policy never lapses.
- Nominee details. Keep the nominee current and make sure the family knows where the papers are.
Common mistakes
- Buying an endowment or money-back plan and calling it protection. These cost much more per rupee of cover. Keep protection and investment separate.
- Relying only on the employer's group cover. It usually ends when you leave the job.
- Choosing the cheapest premium without looking at the claims record or the policy terms.
- Skipping cover for a homemaker or a non-earning parent who still carries real household work.
A term plan pays only if the insured person dies during the term, and it has no maturity value in the basic form. That is exactly why it is cheap. Insurance services are offered through partner insurers, and the final terms are those of the insurer's policy document.
If you want, send us your age, yearly expenses and what you still owe on WhatsApp. We will work out a cover range with you and show a few quotes to compare.
General information, not a recommendation of any specific policy. Premiums and terms vary by insurer, age and health. Mutual fund investments are subject to market risks, read all scheme related documents carefully. Past performance may or may not be sustained in future.
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