Introduction

Term insurance is a pure life insurance product: it pays a death benefit to the nominee if the insured dies during the policy term. There is usually no maturity benefit—it is low-cost life cover. Term plans are designed solely for income replacement and family protection.

Why term insurance is recommended first

• Cost-effective cover: A high sum assured for a low premium if bought young and healthy.
• Simplicity: Transparent payout on death; no complicated bonuses.
• Priority: For most people, buying adequate life cover should come before other investment-insurance hybrids.

Types of term plans

• Level term plan: Sum assured remains constant during the term.
• Increasing term plan: Sum assured increases (often linked to inflation).
• Decreasing term plan: Sum assured decreases over time—commonly used to cover home loans.
• Return of Premium (ROP): Refunds premiums if the insured survives (higher premium).

Riders & add-ons (common)

• Accidental death benefit
• Critical illness
• Waiver of premium on disability

How much cover do you need? (practical approaches)

1. Income Replacement (Rule of Thumb): Cover = Annual income × (Number of years family needs support) × Adjustment factor (to account for inflation & expenses).
2. Human Life Value (more structured):
   • Estimate future earnings until retirement (discounted), then subtract liabilities — results in a recommended cover.

Add outstanding liabilities (home loan) and future expenses (children education) to get final cover.

Buying tips

• Buy as early as possible to lock lower premiums.
• Prefer term plan + separate investments rather than ULIPs/endowment for clarity and cost-efficiency.
• Match the sum assured and term with your financial goals (children’s education, loan tenure).
• Read policy exclusions and claim settlement ratio for the insurer.

Taxation (brief)

Premiums for term insurance are usually eligible for deduction under Section 80C (subject to limits). Death proceeds are generally received tax-free under Section 10(10D) (subject to conditions).