Term Insurance Basics

Term insurance pays a lump sum to your family if you die during the policy period — nothing else. No maturity payout if you survive the term, which is exactly why it's so cheap: a healthy 30-year-old can often get ₹1 crore of cover for roughly ₹10,000-15,000 a year, a fraction of what an endowment or money-back plan charges for similar cover.

Endowment and money-back plans bundle insurance with a savings component, and the bundling is the problem: the investment portion inside these plans typically returns far less than what you'd earn investing the premium difference yourself in mutual funds or PPF, while the insurance portion still costs you real money. You end up with mediocre insurance and mediocre investing, instead of good versions of either.

The right cover amount is typically framed as a multiple of income needed to replace your earnings for your dependents — commonly 10-15x annual income, adjusted for existing loans (a term plan large enough to also clear an outstanding home loan protects your family from inheriting that liability) and how many years of expenses your family would need covered.

Buy term insurance while young and healthy: premiums are locked in at issue based on your age and health then, and a health condition that develops later can make cover far more expensive or harder to get at all. This is one of the few financial products where 'I'll get to it later' has a real, compounding cost.