Term Insurance

Insurance

Term insurance is pure life insurance providing a lump sum death benefit to nominees if the policyholder dies during the policy term. It has no maturity or survival benefit -- you pay for protection only. It is the cheapest way to provide large financial coverage for dependents.

In detail

Term insurance is what life insurance is meant to be: maximum coverage for minimum premium. A healthy 30-year-old non-smoker can get Rs 1 crore cover for Rs 7,000-10,000/year. The same Rs 1 crore cover in a ULIP or endowment plan costs Rs 60,000-1,00,000/year -- 8-15x more for the same coverage.

Coverage needed: typically 10-15x annual income + outstanding loans. A family with Rs 12L annual income and Rs 40L home loan needs approximately Rs 1.6 Cr minimum coverage.

Buy online directly from insurer website -- premiums are 30-40% lower than offline/agent purchases.

Formula

Coverage needed = (Annual income x 15) + Outstanding loans + (Annual expenses x remaining earning years) Human Life Value (HLV) approach: HLV = PV of expected future income = Annual income x Income multiplier (based on age and years to retirement)

Real-life example

🇮🇳 India example

Rahul, 30, non-smoker, earns Rs 15L/year. He buys Rs 1.5 Cr term plan online (HDFC Click2Protect) for Rs 12,000/year (Rs 1,000/month). Premium is Rs 12,000/year for 30 years = Rs 3.6L total investment. If he dies at 45, family gets Rs 1.5 Cr. If he survives to 60, he pays Rs 3.6L for 30 years of security -- that is the pure protection deal.