Term insurance is the purest form of life insurance. You pay a yearly premium. If you die during the policy term, your nominee receives the sum assured (the cover amount). If you survive, nothing is paid. There are no investments, no bonuses, no cash value.
The "financial replica" concept
Think of term insurance as replacing your income-generating ability. If you earn ₹10 lakh/year and your family needs 20 more years of that income, you need approximately ₹2 crore in term cover. Your policy is a financial replica of you — it stands in for your earnings.
How it works — a simple example
- • Ravi, 30 years old, buys a ₹1 crore term plan for 30 years
- • Premium: ~₹8,000–12,000/year (non-smoker)
- • If Ravi dies at 45 (during the policy): His family receives ₹1 crore, tax-free
- • If Ravi lives to 60 (policy ends): Nothing paid. The premium was the cost of protection.
Why is term insurance so cheap?
Because there is no investment component. 100% of the premium goes toward the pure cost of covering your death risk. Compare this to endowment or ULIP plans where 30–60% of your premium goes into investment charges and fees.
Key features of a good term plan
- High sum assured: At minimum 10–12× your annual income
- Long term: Should run until at least age 65–70
- Online purchase: Removes agent commissions, lowers premium
- High Claim Settlement Ratio: Check IRDAI data — aim for 97%+
Term vs endowment vs ULIP
| Feature | Term | Endowment | ULIP |
|---|---|---|---|
| Premium for ₹1Cr cover | ₹8,000–15,000/yr | ₹3–5 lakh/yr | ₹1–2 lakh/yr |
| Death benefit | Full sum assured | Sum assured + bonus | Higher of fund or SA |
| Survival benefit | None | Maturity payout | Market-linked fund value |
| Investment returns | None | 4–6% (low) | Varies (market-linked) |
| Ideal for | Pure protection | Not recommended | Not recommended |
Read the full comparison: Why term beats endowment and ULIP →
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