Term insurance is the simplest, most important financial product most families are underusing. It does one thing: if you die during the policy term, your nominee receives the sum assured. No savings component, no maturity benefit, no investment return — just a clean, affordable promise that your family will be financially protected.
The problem isn't that people don't buy term insurance. It's that most people buy far too little of it.
How most people pick their cover amount — and why it's wrong
The typical process: visit an online aggregator, see that ₹1 crore sounds like a lot of money, notice the premium is affordable, and buy ₹1 crore of cover. This is the wrong process. The cover amount should be determined by your financial obligations — not by what sounds large or what you can afford.
The right way to calculate your cover need
The most widely used framework is the Human Life Value (HLV) method, with adjustments for liabilities:
| Component | Example (35-year-old, ₹15L income) |
|---|---|
| Income replacement (15–20x annual income) | ₹2.25–3 crore |
| Outstanding home loan | ₹60 lakh |
| Children's education fund | ₹40 lakh |
| Other liabilities (car loan, personal loan) | ₹8 lakh |
| Total cover required | ₹3.3–4 crore |
| Existing assets (PF, investments) | − ₹25 lakh |
| Net cover to buy | ₹3–3.75 crore |
A professional earning ₹15 lakh per year needs ₹3–4 crore of term cover — not ₹1 crore. That ₹1 crore cover feels significant. It would replace 6–7 years of income. Is 6–7 years enough for your family to rebuild their financial life without you?
Why the 10x rule is the minimum, not the target
You will often hear the advice to buy 10x your annual income in term cover. For most situations, 10x is the floor — not the recommendation. Consider what ₹1.5 crore (10x on ₹15L income) actually does: invested at 6–7% in debt instruments, it generates ₹9,000–10,500 per month. Is that enough to run your household, educate your children, and maintain your family's standard of living? For most urban professionals, no.
A more realistic target for most earning professionals with dependants and liabilities: 15–20x annual income, adjusted for outstanding loans and existing assets.
The cost argument — and why it doesn't hold
The most common objection to higher cover: "a higher sum assured means a higher premium." This is true, but the mathematics are more favourable than most people realise.
| Cover Amount | Approx. Annual Premium (35yr male, non-smoker) |
|---|---|
| ₹1 crore | ₹10,000–12,000 |
| ₹2 crore | ₹16,000–19,000 |
| ₹3 crore | ₹22,000–26,000 |
| ₹5 crore | ₹33,000–38,000 |
Doubling your cover from ₹1 crore to ₹2 crore costs roughly ₹6,000–7,000 more per year — ₹500–600 per month. That incremental cost buys your family an additional ₹1 crore of protection. In the context of what it buys, term insurance is the cheapest financial product you will ever purchase.
Other things to get right
- Policy term: Cover yourself until at least age 65 — ideally 70. Your income-earning years may extend well into your 60s, and your dependants (including ageing parents) may need protection longer than you think.
- Claim Settlement Ratio: Buy from insurers with a CSR above 97–98%. This data is published annually by IRDAI. A slightly higher premium from a reliable insurer is worth more than a slightly lower premium from one with a poor claim settlement record.
- Smoker vs non-smoker declaration: Declare accurately. Mis-declaration is the most common reason for claim rejection.
- Riders: Critical illness and accidental disability riders are worth considering — especially if your family's dependence on your income is high and you have limited health cover.
The takeaway
Term insurance is not a box to tick. It is the foundation of your family's financial safety net. Most people who have term insurance are underinsured — sometimes significantly. The fix is straightforward: calculate your actual cover need using HLV + liabilities, compare it to what you currently hold, and top up the gap. The premium difference is almost always smaller than you expect, and the protection difference is larger than you imagine.