Term insurance — how much cover do you actually need?

Quick frame: Term insurance replaces your earning capacity for dependents. The standard rule: cover should equal 10-20× annual income, plus outstanding loans, plus big future goals (children's education). Most working Indians have 1-3× income coverage — 5-7× too low. Pure-term insurance is cheap (~₹15-25k/yr at age 30 for ₹1 cr cover); use the Term Insurance Calculator to size right.

Why 10-20×?

Logic: Your spouse needs to survive 20-25 years on your income replacement. At 7% safe withdrawal (inflation-adjusted), you need 14× annual expenses to cover 25 years. Round up for conservatism — 20×.

Add: outstanding loans (would be paid off from cover) + big goals (kid's foreign degree, etc.) − existing cover.

For a 30-year-old earning ₹15 lakh, with a ₹40 lakh home loan and a 2-year-old kid:

• Income replacement: ₹15L × 15 = ₹2.25 cr
• Loans: ₹40 lakh
• Goals (kid education): ₹1 cr
• Total: ₹3.65 cr

Existing employer cover (1-2× CTC) is ₹15-30 lakh. So additional cover needed: ~₹3.5 cr.

Why employer term cover isn't enough

• It typically only covers 1-3× CTC
• Stops the day you leave the company
• No medical underwriting → reset of pre-existing condition exclusions when you leave
• Some are group plans (less robust)

Always have a personal pure-term policy outside employer cover.

Pure term vs return-of-premium

• Pure term: ₹15-25k/yr for ₹1 cr at age 30. Pay yearly. If you die: ₹1 cr to family. If you live: zero return. The classic insurance product.
• Term with return-of-premium (TROP): ₹40-60k/yr (2-3× pure term). At policy end (60-65), you get all premiums back.

Math: invest the ₹25-35k difference in equity MF for 30 years at 12% = ₹85 lakh. TROP would return only ₹12-15 lakh of premiums. Pure term + MF beats by 6-8x.

Always pick pure term. Insurance & investment should be separate.

Insurer claim ratio matters more than premium

The cheapest insurer might have a 90% claim settlement ratio. Pay 10-15% extra premium for an insurer with 99%+ ratio. LIC, ICICI Pru, HDFC Life, SBI Life, Max Life — all consistently above 98% in recent years.

Check IRDAI's annual report for current ratios.

Adequate or excess cover?

• Inadequate (under 10× income): family struggles after your death
• Optimal (10-20× + loans + goals): family stable, can pursue normal life
• Excessive (over 25× income): you're paying for cover that's morally questionable to claim

When to top up?

• Big life events: marriage, child birth, home purchase
• Income jump: every doubling of income, recompute
• Inflation: your ₹1 cr cover at 30 is worth half by 50

Consider a 15-20 year policy at 30, then top up at 35-40.

FAQ

Q. What about online vs offline term plans? A. Online plans are 30-40% cheaper (no agent commission). Same coverage, same insurer. Buy online — Policybazaar / Coverfox / direct insurer site.

Q. Should women buy separate term insurance? A. Working women: yes. Stay-at-home: only if family depends on her income or services (which have replacement cost).

Q. Smoker premium difference? A. 50-100% higher. Don't lie on the application — claim denial later costs the family. Insurers test (cotinine in blood) at the time of medical exam.

Q. Term insurance for NRIs? A. Yes, several insurers offer. Some require Indian residency at policy purchase but continued NRI status is fine.

Q. Can I claim term premium in tax? A. Yes — section 80C deduction (within ₹1.5L cap). Sum assured + claim is fully tax-free under section 10(10D). Truly EEE.