Insurance Basics · Updated October 2026 · 6 min read
Term insurance is the simplest and cheapest form of life insurance. You pay a premium for a fixed period, the term. If you die during that period, the insurer pays a lump sum, the sum assured, to your nominee. If you outlive the term, nothing is paid out. That is why it is so affordable: it is pure protection, not an investment.
In short: If anyone depends on your income, term insurance is usually the first insurance to buy after health cover. A common starting point is cover of 10 to 15 times your annual income, plus any loans, for a term that lasts until your dependants no longer rely on you.
Who needs it
- Anyone with a spouse, children or parents who depend on their income.
- Anyone with a home loan or other large debt that the family would have to repay.
- People with no dependants and no large loans usually do not need it yet.
How much cover do you need?
A simple way to estimate:
- Replace your income: roughly 10 to 15 times your yearly income, depending on your age and how long your family will need support.
- Add your loans: home loan, car loan and any other debts.
- Add big future goals: such as children’s education.
- Subtract what you already have: existing life cover and savings set aside for these goals.
Example: you earn ₹12 lakh a year and have a ₹30 lakh home loan. 12 times your income is ₹1.44 crore. Add the loan and you reach about ₹1.74 crore, so cover of around ₹1.75 crore to ₹2 crore would be a reasonable starting point. Review it when your income, loans or family change.
How long should the term be?
Choose a term that runs until your dependants become financially independent and your big loans are repaid, usually up to around age 60 to 65. A longer term costs more each year, but it costs less to lock in a long term while you are young and healthy.
What affects the premium
- Age: premiums are lowest when you buy young, and stay fixed for the whole term.
- Health and lifestyle: smokers and people with some health conditions pay more.
- Cover amount and term.
- Riders: optional add-ons such as accidental death, critical illness or waiver of premium raise the cost.
Tips when buying
- Disclose everything honestly: health history, smoking, alcohol and existing policies. Hiding facts is the most common reason claims are rejected.
- Look at the insurer’s claim settlement record, published in IRDAI annual reports, as one of several factors.
- Prefer a plain term plan. “Return of premium” plans cost much more for the same cover.
- Add a nominee and tell your family about the policy.
- Use the free-look period to review the policy after you receive it and cancel it if it does not suit you.
Tax
Under the old tax regime, term premiums qualify for a deduction within the ₹1.5 lakh overall limit. This deduction is not available under the new regime. Death benefits paid to the nominee are generally tax-free.
Common questions
Should I buy term insurance or an endowment or ULIP plan?
Those plans combine insurance with investment, which usually means much lower cover for a much higher premium. Many people prefer term insurance for protection and invest separately.
Does my employer’s group cover count?
It helps, but it usually ends when you leave the job and is often too small. Treat it as a bonus, not your main cover.
Next steps: Read health insurance basics, and make sure you have an emergency fund.
Disclaimer: This guide is for education and is not financial or insurance advice. Policy features, waiting periods and exclusions differ between insurers and products, so read the policy wording and check with the insurer before you buy.