Term Insurance in India:
How Much Cover Do You Actually Need?

Life insurance exists for one reason: if you die prematurely, the people who depend on your income should not have to change their lives because of it. Your children should still go to the school you planned for. Your spouse should not have to sell the home. Your parents should not lose their financial support. Whether that happens depends entirely on one number — your sum assured. Most Indians get this number badly wrong.

Why Most People Are Under-Insured

India's life insurance penetration is among the lowest for a large economy. But the deeper problem isn't that people have no insurance — it's that most people who do have insurance are covered for far less than they need. A ₹25–50 lakh endowment policy, bought through a bank or an agent, feels reassuring. In reality, it often covers less than two years of the family's income — nowhere near what a family would need to rebuild their financial life.

The mismatch happens because insurance in India has historically been sold as a savings or investment product, not as pure protection. The sum assured on most traditional policies is driven by how much premium was paid — not by how much the family actually needs. Term insurance fixes this completely: it is pure protection, the premium buys only coverage, and for the same money you can get 5–10× the cover.

The "10× Salary" Rule — Useful but Incomplete

The most common rule of thumb is to have life cover equal to 10–15 times your annual income. It's a reasonable first approximation — quick to calculate and directionally correct. But it ignores three variables that can dramatically change your actual requirement: your outstanding liabilities, your specific financial goals for your dependents, and your existing assets.

A more rigorous approach is the DIME framework — used by financial planners globally and well-suited to the Indian context. DIME stands for Debt, Income replacement, Mortgage (or any major liability), and Education goals.

The DIME Framework: Calculate Your Real Number

Notice that Rohan needs ₹4.4 crore of cover — not the ₹1.8 crore that a simple "10× salary" rule would suggest. The home loan and education goals together add over ₹1 crore to the requirement. This gap is exactly where most Indian families are exposed.

What Does ₹4.4 Crore of Term Cover Actually Cost?

This is where term insurance becomes remarkable. For Rohan — a healthy, non-smoking 35-year-old male — a ₹4.5 crore term plan covering him until age 65 costs approximately ₹28,000–₹35,000 per year, depending on the insurer and plan chosen. That is less than ₹100 per day to secure his family's entire financial future for 30 years.

Compare this to a ₹50 lakh endowment plan that many people of Rohan's age hold — with a premium of ₹50,000–₹80,000 per year — offering one-ninth the cover at double the cost. The reason the endowment costs more for less is the savings component bundled inside it. Strip that out, buy pure protection, and the maths changes completely.

Four More Factors That Affect Your Cover Requirement

Three Mistakes to Avoid When Buying

Even when people decide to buy the right amount of term cover, these mistakes can undermine the policy:

1. Buying from your bank without comparing. Banks typically sell policies of their insurance subsidiary — not necessarily the best-priced or highest claim-settlement-ratio option. Compare at least 3–4 insurers using aggregator platforms before deciding. A 10-minute comparison can save ₹5,000–₹8,000 per year on the same cover.
2. Not disclosing health conditions accurately. Hiding a pre-existing condition, smoking habit, or family medical history to get a lower premium is the single most common reason claims get rejected. Disclose everything at the time of purchase — the insurer will price it in, but at least your family will receive the money when it's needed.
3. Buying too late. Every year you delay increases the annual premium. A ₹1 crore term plan bought at 30 costs roughly ₹7,000–₹9,000 per year. The same plan at 40 costs ₹14,000–₹18,000. At 45, it can exceed ₹25,000. Buy early, buy right, and lock in the lower premium for the full policy term.

Claim Settlement Ratio: What It Means and What It Doesn't

IRDAI publishes annual Claim Settlement Ratios (CSR) for all life insurers in India. Most established insurers now report CSRs of 97–99.5% — meaning the vast majority of claims are paid. The CSR should be a basic filter, not the only one. A more useful metric is the claim rejection rate for specific reasons (non-disclosure, suicide clause, policy lapses) — which insurers are required to report but which receives less attention.

The simple truth: a fully disclosed, accurately filled policy from a well-established insurer will almost certainly pay out. The risk of non-payment comes not from the insurer — it comes from incomplete disclosure at the time of purchase.