Term insurance is pure life cover, if the policyholder passes away during the term, the nominee receives the full sum assured; if they survive the term, there is no maturity payout. This is exactly why it's the cheapest way to get a large life cover, and financial planners widely recommend it as the foundation of a family's financial safety net.
Worked Example:
Age 30, ₹1 Cr cover, 30-year term → Estimated ₹5,000-8,000/year
Why is term insurance so cheap compared to LIC endowment?â–¾
Term insurance is "pure" life cover with no savings component. If you survive the policy term, you get nothing back, that's why it's cheap. For a 30-year-old, ₹1 Cr term cover costs just ₹600-800/month. The same ₹600/month invested in an SIP would grow to ₹2.5+ Cr in 30 years. This "buy term + invest the rest" strategy typically beats endowment plans significantly.
How much term cover do I actually need?â–¾
A common rule of thumb is 10-15 times your annual income, adjusted for outstanding loans (home, car) and future goals (children's education, spouse's retirement). A simpler approach: add up all outstanding debts + years of income your family would need to replace + future big expenses, minus existing savings and insurance.
What is claim settlement ratio and why does it matter?â–¾
Claim settlement ratio is the percentage of claims an insurer actually pays out in a year, published annually by IRDAI. A higher ratio (95%+) suggests the insurer is more reliable at honouring claims. Always check this alongside premium when comparing term insurers, the cheapest premium is worthless if claims get rejected.
Should I buy term insurance riders like critical illness or accidental death?â–¾
Riders add extra protection for a small additional premium, critical illness riders pay a lump sum on diagnosis of specified diseases, and accidental death riders pay extra if death is accidental. They're worth considering if you don't have separate health/critical illness cover, but they do add cost, so weigh against buying a standalone policy instead.