Term insurance vs everything else: the only life cover you need

Life insurance is one of the most oversold and least understood products in India. The industry has convinced millions of people to buy expensive plans that protect their families badly and grow their money worse. The honest version is refreshingly simple: if anyone depends on your income, buy pure term insurance and invest the rest yourself.

What term insurance actually is

Term insurance is the simplest form of life cover. You pay a small annual premium, and if you die during the policy term, your family gets a large lump sum. If you outlive the term, you get nothing back — and that is the point. You are buying protection, not a piggy bank.

Because it does nothing except protect, it is astonishingly cheap. A healthy 25-year-old can often get ₹1 crore of cover for roughly ₹10,000-15,000 a year. That is the whole appeal: maximum protection for minimum cost.

Why 'everything else' is a bad deal

Walk into any bank or meet any agent and you will be pushed toward ULIPs, endowment plans, or money-back policies. They sound attractive — 'insurance plus returns plus a lump sum at maturity!' — but the maths is grim:

• •The cover is tiny. These plans often give ₹5-10 lakh of cover for a premium that would buy ₹1 crore of term cover.
• •The returns are weak. Bundled plans typically return around 4-6%, barely beating inflation, while a simple index fund has historically done far better.
• •The costs are hidden. Fat commissions and charges are quietly baked into your premium, especially in the early years.
• •They are hard to exit. Surrendering early usually means losing a chunk of what you paid in.

The smarter move is 'buy term and invest the difference'. Take pure term cover for a fraction of the cost, then put the money you saved into a low-cost index fund. You end up with more protection and more wealth. It is not close.

How much cover you actually need

The number people quote — 'oh, get ₹50 lakh' — is usually pulled from thin air. Your cover should be enough to replace your income and clear your debts so your family is genuinely fine without you. A reasonable way to size it:

1. 1.Take 10 to 15 times your annual income as a base.
2. 2.Add any outstanding loans — home, car, personal — that would fall on your family.
3. 3.Add big future goals like a child's education.
4. 4.Subtract existing savings and investments that already provide a cushion.

So if you earn ₹12,00,000 a year and have a ₹40,00,000 home loan, you are likely looking at cover somewhere around ₹1.5 to ₹2 crore — not the ₹25 lakh an agent might quietly sell you.

What the claim settlement ratio really tells you

The claim settlement ratio (CSR) is the percentage of death claims an insurer paid out in a year. It is worth glancing at — you want an insurer that actually pays — but it is widely misunderstood. A 98% versus 99% ratio is not a meaningful difference, and the number is easily skewed.

What actually gets claims rejected is rarely the insurer being evil — it is the customer hiding something. Claims get denied mostly because the policyholder lied on the application. So the real protection is on your side:

• •Disclose everything honestly — your health, smoking, drinking, income, and existing policies.
• •Never let an agent fill the form 'to make it easier'. Wrong answers there can void the whole claim.
• •Buy from a reputed insurer with a long track record, then stop obsessing over the last decimal of the CSR.

The bottom line

If people depend on your income, buy a pure term plan for 10-15 times your annual income plus your loans, disclose everything honestly, and invest whatever you saved by skipping the bundled products. That single decision protects your family better than any glossy 'investment-cum-insurance' brochure ever will.