Term Insurance in India — How Much Cover, Which Insurer, and Common Mistakes

The most commonly recommended method is income replacement: 10–15x your annual income. For a ₹10L annual income earner, ₹1–1.5 crore cover. The logic: if your family invests the sum assured at 7% per annum, they can live off the interest (₹7–10.5L/year) indefinitely. However, this doesn't account for liabilities or goals.

Human Life Value (HLV) method: HLV = Present Value of all future income – Personal consumption expenses. For a 35-year-old earning ₹10L/year with 25 more working years, HLV ≈ ₹1.5–2 crore. Add outstanding loans (home loan ₹50L) and children's education goals (₹30L), subtract existing investments (₹20L) = total need ≈ ₹1.6–1.8 crore. Use the higher of income replacement or HLV.

Common mistake: buying the minimum available (₹50L) for cost savings. At age 30, a ₹1 crore 30-year term plan costs ₹8,000–12,000/year — Rs 22–33 per day. The difference between ₹50L and ₹1 crore cover is often just ₹3,000–5,000/year. Always over-insure rather than under-insure — you can't buy more cover after a health diagnosis.

Claim Settlement Ratio (CSR) for individual death claims: IRDAI data FY 2023-24. Life Insurance Corporation (LIC): 98.7% — highest absolute CSR due to government backing. Private insurers: Max Life (99.5%), Tata AIA (99.01%), HDFC Life (98.6%), ICICI Prudential (98.0%), SBI Life (97.7%). Don't over-optimize CSR — any insurer above 97% is considered reliable.

Solvency ratio: a measure of the insurer's financial strength. IRDAI mandates minimum 1.5x. Higher is better. LIC: 1.87x, HDFC Life: 2.9x, ICICI Prudential: 2.25x, Max Life: 2.15x. Insurers with solvency ratio >2x are financially very healthy.

Premium comparison for ₹1 crore, 30-year term, 30-year-old non-smoker male: LIC e-Term: ₹11,000–14,000/year. HDFC Click2Protect: ₹8,500–10,000/year. Max Life Smart Term Plan: ₹8,000–9,500/year. ICICI Prudential iProtect Smart: ₹9,000–11,000/year. Premiums vary with exact age, sum assured, and tenure. Buy online directly from insurer for lowest premium.

Worth buying: Accidental Death Benefit rider — adds extra sum assured (typically same amount as base cover) if death is due to accident. Cost: ₹500–1,500/year additional. Critical Illness rider — lump-sum payout (₹25–50L) on diagnosis of listed critical illnesses (cancer, heart attack, kidney failure, etc.) before death. Provides funds for expensive treatment without waiting for policy payout.

Not worth it: Return of Premium (TROP) plans — if you survive the policy term, premiums are returned. Sounds great but the extra premium paid for this benefit invested in equity SIP would be worth 3–5x the returned premium. TROP plans cost 2–3x more than pure term plans. Avoid unless you have very low risk tolerance or high anxiety about insurance costs.

Disclosure is critical: the #1 reason for claim rejection is material non-disclosure. Disclose all health conditions honestly: hypertension, diabetes, weight (BMI), family history of cardiac/cancer/diabetes. Don't try to save ₹2,000/year in premium by hiding a health condition — the claim rejection will cost your family ₹1 crore.