Friday, September 26 2025
Source/Contribution by : NJ Publications

In today's uncertain world, securing your family's financial future is not just wise—it's essential. One of the most effective ways to do that is through term life insurance. Term insurance is a pure life cover that offers a large sum assured at relatively low premiums. It is designed to protect your loved ones in the event of your untimely demise. A promise to your family that is simple, yet powerful. 

This payout can be a lifeline, helping them manage daily expenses, clear debts, and secure their future dreams. This article serves as a guide, highlighting five essential things to remember before you make the right decision.

1. Assess Your Needs - Risk Cover Amount

One of the biggest mistakes people make is underestimating their life cover needs. The primary purpose of term life insurance is to provide financial support to your family in your absence. Hence, choosing the right coverage amount—also known as the sum assured—is crucial.

A ₹1 crore life insurance cover might sound impressive, but is it enough to sustain your family's lifestyle for the next 20-30 years? How much is adequate? As a general rule, your life insurance should be at least 15 to 20 times your annual income. But that's just a thumb rule. Consider your existing liabilities (like home or car loans), future expenses (children's education, marriage), day-to-day living expenses, and inflation. An insurance sales person can help you with this calculation, but understanding the basics empowers you to make a sound decision.

For instance, if you earn ₹10 lakh per year, a life insurance cover of at least ₹1.5 crore can be adequate. However, if you have a home loan of ₹40 lakh and two children whose future education would cost ₹10 lakhs, you should opt for a cover of ₹2 crore.

Remember: Life insurance policy is not just to clear your loans but to replace your income. Don’t underinsure yourself just to save on premiums. Your family’s future should not be compromised due to inadequate planning.

2. Select the right policy tenure

Another important factor is the duration of the term plan. Ideally, the policy should cover you until you reach financial independence—that is, when you have enough assets or savings that your dependents won’t need an insurance payout if something happens to you.

A term policy is a contract for a specific period, and if you outlive it, you don't receive any payout. The ideal term should cover your primary earning years and key financial responsibilities.

Most people in India opt for coverage until age 60 or 65, coinciding with retirement. However, some term plans allow coverage up to the age of 75 or even 85. Be mindful, though—longer tenures come with higher premiums.

How to determine this - is by asking yourself:

• When will your children become financially independent?

• How long will your family depend on your income?

• Will you have significant savings by a certain age?

Choose a policy term that adequately matches your life stage and responsibilities. This ensures that even if something were to happen to you, your family would have a safety net until they can stand on their own feet.

3. Do Not Hide Health or Lifestyle Information

Life insurance is based on the principle of "utmost good faith." This means you must disclose all relevant information to the insurer, especially regarding your health or lifestyle. Always be honest while filling out your proposal form. Hiding a pre-existing medical condition, smoking/alcohol habit, any other health-related information, existing insurance policy or a rejected proposal, can impact your new policy.

Be honest and transparent. If you're a smoker, declare it. If you have a history of diabetes or high blood pressure, mention it. Insurance companies assess your risk profile based on the information you provide. While it might slightly increase your premium, it guarantees that your family's claim will be honored when they need it the most. Hiding facts may lead to denial of claims later, defeating the entire purpose of buying insurance. 

4. Expand the cover with add-ons/riders

Basic term life insurance covers death due to natural or accidental causes. But additional protection can be obtained through riders—add-on benefits that enhance your base policy cover for a minimal additional premium.

Common riders include:

• Critical illness rider: Pays a lump sum on diagnosis of serious illnesses like cancer, heart disease, etc.

• Accidental death benefit rider: Pays an extra amount if death occurs due to an accident.

• Waiver of premium rider: Waives future premiums in case of permanent disability or diagnosis of critical illness.

5. Consult a Professional 

While term life insurance may appear simple, making the right choice requires professional guidance. The complexities of identifying the need for life insurance & process of getting one requires help from an expert. Consulting an insurance sale person can help you:

• Customized Needs Assessment: An advisor will go beyond the basic calculations and understand your specific family dynamics, income patterns, and future aspirations to recommend a policy that is truly customised to your needs.

• Understand Policy Terms & Conditions: Insurance policy documents can be dense and filled with technical jargon. An expert can help you understand the exclusions, riders, and terms and conditions, ensuring you are fully aware of what you are buying.

• Claim Settlement Assistance: In the unfortunate event of a claim, an advisor can provide crucial support to your family, helping them with the documentation and processes, and ensuring a smoother settlement experience.

• Informed Decision Making: An Insurance sales person can help you compare different policies from various insurers based on their policy benefits, add-on riders, claim settlement ratio, empowering you to make an informed decision rather than just choosing the cheapest option.

Summary

Buying a term life insurance policy is a long-term commitment and a crucial step towards securing your family's financial future. By adequately assessing your life cover, choosing the right policy term, being transparent about your health, getting rider/add-ons, and most importantly, consulting a professional, you can ensure that the policy you buy provides the security and peace of mind you intended it to. 

However, while affordability matters, don't make price (premiums) the only deciding factor.

Disclaimer: Mutual Fund investments are subject to market risks, read all the scheme related documents carefully.