Term Insurance: The One Number Most Indians Underbuy

Amit, 32, earns Rs. 28 lakh, wife is homemaker, two kids. His employer gives Rs. 50 lakh of life cover. He thinks he is set. He is underinsured by roughly Rs. 2.5 crore. If he dies tomorrow, his family runs out of money in year 4. Groceries, school fees, loan EMIs all compounding against a depleted corpus. The cover you need is a number, not a feeling; the calculation is simpler than most sellers make it sound, and every year of delay makes the premium permanently higher.

By the end, you will know the cover size your family actually needs using the 10-15x income + liabilities formula, the age-lock math that rewards early buying, and the two rider features worth the small extra premium.

The formula. Three inputs, one answer

Needed cover = (10 to 15 x annual post-tax income) + outstanding liabilities (home loan, car loan, personal loan, credit-card debt) + specific future goals (children's higher education, weddings) - existing liquid investments (MFs, FDs, equity. Not real estate). The multiplier (10 or 15) depends on how many years of family expenses the cover should sustain. 15x for a single-earner household with young children, 10x for a dual-earner household with older kids.

Amit's numbers: 15 x Rs. 28L = Rs. 4.2 crore + home loan Rs. 40L = Rs. 4.6 crore - existing Rs. 20L MF portfolio = Rs. 4.4 crore. His employer cover of Rs. 50L leaves Rs. 3.9 crore uncovered. That is the gap he needs to close with personal term insurance. Buying Rs. 4 crore cover at 32 costs Rs. 26k-Rs. 32k/year for non-smoker; at 42 the same cover costs Rs. 58-Rs. 72k/year. A decade of delay more than doubles lifetime premium.

Pure term, nothing else

Pure term plans give Rs. 1-2 crore cover for Rs. 8,000-Rs. 15,000 annual premium at age 30. No investment component, no maturity benefit, no survival payout. Any product that promises a return at maturity (ULIP, endowment, money-back) costs 4-5x for half the cover. Mathematically the wrong product for life insurance. The agent commission on term is 2-5% of first-year premium; on ULIP/endowment it is 25-40%. Which is why the selling pressure is entirely on the combo products, not the clean term plan.

Buy from insurers with high claim-settlement ratios: LIC, HDFC Life, Max Life, SBI Life, ICICI Prudential. All above 98% in FY 2023-24 IRDAI data. A 95% settlement ratio sounds high but means 5 in 100 legitimate claims get denied on technicalities (unreported pre-existing conditions, lifestyle disclosures). Disclose EVERYTHING at policy stage, including occasional smoking, family history, and minor past illnesses; non-disclosure is the #1 reason for claim denial.

Term tenure and the age-lock

Buy term to cover until age 60 or 65, matching your expected earning years. Buying a term plan to 75 or 85 sounds comprehensive but adds 30-40% premium for coverage during years you do not need it (kids grown, mortgage paid, spouse has her own corpus). The premium locks at ISSUE age. Buying at 32 and paying till 60 means paying the 32-year-old rate for 28 years, even though your actual risk rises with age. Each year's delay increases the rate for ALL future years.

Cover increases with career; buy early

A 28-year-old gets Rs. 1 crore cover for Rs. 9,000/year. A 42-year-old pays Rs. 22,000 for the same cover. The premium-age curve is steep after 35 because risk-of-death rises exponentially. Buy when young; buy the longest tenor you genuinely need; add rider upgrades as life stages evolve (marriage, kids) rather than waiting to "figure it all out" first.

Cover increases with career; buy early

A 28-year-old: Rs. 1 crore cover for Rs. 9,000/year. A 42-year-old: Rs. 22,000 for the same cover. Premium locks at issue age. Buy young, buy longest tenor. The rate is frozen for the entire tenure.

Critical-illness rider: worth the 8-15% extra premium

Standalone term gives a death benefit only. A CI rider pays a lumpsum on diagnosis of specified illness (cancer, heart attack, stroke, kidney failure). Treatment costs for these run Rs. 10-25 lakh + income loss during 6-12 months of treatment. The rider often pays its premium back in one event.

Accidental death benefit (ADB) rider

ADB rider doubles the payout for accidental death. Roughly Rs. 1,500-Rs. 3,000 additional annual premium on a Rs. 1 crore base. Worth it for those with long commutes, frequent travel, or field-work careers. Zero value for the typical desk worker.

Key Takeaways

Cover = (10-15 x income) + liabilities + major goals - liquid investments.
Pure term plans: cheapest cover, no investment hybrid. Never buy ULIP/endowment for life cover.
Premium locks at issue age; younger = cheaper for life. Delay costs compound.
Employer cover != sufficient. It disappears the day you leave the company.
Add critical-illness rider if budget allows; ADB rider for high-travel careers.