Term insurance is the simplest form of life insurance. You pay a premium for a chosen term — say 30 years — and if you die during that term, the insurer pays the cover amount (sum assured) to your nominees. If you outlive the term, the policy ends without a payout, unless you choose a return-of-premium variant, which costs more.
Why it matters
Its purpose is income replacement. If people depend on your income — a spouse, children, parents — or you carry loans your family would have to repay, term insurance can provide a large amount of cover for a relatively small premium, because it carries no savings component.
How to read it
- Cover amount. Size it to what your dependants would need — income replacement, outstanding loans and major goals — minus existing assets and cover. See human life value.
- Term. Usually until your dependants are financially independent or until your planned retirement.
- Riders. Add-ons such as accidental death or critical illness cover cost extra; read what each actually covers.
- Disclosure. Accurate disclosure of health, habits and occupation at purchase is essential for a smooth claim.
- Claims record. The insurer’s claim settlement ratio and claims process are worth checking.
Common misconceptions
- “No payout means wasted money.” The premium buys protection for the term, like any other insurance.
- “My employer’s cover is enough.” Group cover usually ends when you leave the job and may be smaller than your family needs.
- “Insurance should also be an investment.” Combining the two often means lower cover at higher cost; many people keep them separate.
In India: Life insurers are regulated by IRDAI. Premiums may qualify for a deduction under the old tax regime, within limits; check current provisions.
Related terms
Sum assured
The cover amount in a life insurance policy — what the insurer agrees to pay your nominees on a valid claim.
Human life value
An estimate of the economic value of your future income to your family — a common way to size life insurance cover.
Claim settlement ratio
The share of claims an insurer settled out of the claims it dealt with in a year — one indicator of how it handles claims.
Health insurance
Insurance that pays for hospitalisation and related medical costs, up to a sum insured, under your policy’s terms and exclusions.
Emergency fund
Money kept safe and easy to reach to cover several months of essential expenses if income stops or an unexpected cost arrives.