Term insurance gives your family a large payout if you die during the policy term, at a low premium. Learn why it is so affordable and which cover option to pick.
Term insurance is the simplest and purest form of life insurance. You pay a premium, and if you die during the policy term, your family receives a fixed amount of money. If you survive the term, the policy simply ends. There is no maturity benefit.
That may sound like "losing money", but think of it like the insurance on your motorcycle or car. You do not expect money back if there is no accident. You pay for the peace of mind that your family will be financially safe if the worst happens.
Why is the cover high and the premium low?
This is the biggest strength of term insurance. In a savings plan, a large part of your premium goes towards building the maturity amount. In a term plan, the whole premium goes towards protection only. Because nothing is paid back on survival, the cost per rupee of cover is much lower.
The result: for the premium you might pay on a modest savings plan, a term plan can often give you many times more life cover. For a family that depends on one earning member, this difference can be life-changing.
A simple example
Illustration only, not a quote.
Imran, aged 30, is the only earning member of his family. He buys a term plan with a sum assured of ₹50,00,000 for 30 years.
- If he dies at age 45, his wife and children receive ₹50,00,000 (as per the policy terms), which can help pay school fees, household costs and any loans.
- If he lives to age 60, the cover ends and nothing is paid, but his family was protected for all those 30 years.
The actual premium depends on his age, health, smoking habits, term and cover chosen.
Term insurance vs savings plans
| Feature | Term plan | Endowment / money back plan |
|---|---|---|
| Main purpose | Protection only | Protection + savings |
| Payout on survival | None | Yes |
| Life cover for a given premium | High | Much lower |
| Premium for a given cover | Low | Higher |
Neither is "better" for everyone. Many families buy a term plan for large cover and a separate savings plan for goals.
Level cover vs increasing cover
Term plans usually offer a choice of how your cover behaves over time:
- Level sum assured: the cover stays the same throughout the policy term. Simple and lowest cost.
- Increasing sum assured: the cover goes up over the years as per a fixed schedule. This helps keep pace with rising living costs and a growing family, but costs more.
Some plans also let you pay premiums for the full term (regular), for a shorter period (limited), or all at once (single). Check the plan's terms before choosing.
Covering a loan: the credit-life idea
If you have a home loan or other big loan, your family could be left with the EMIs if you die early. A term policy can be used to protect the loan:
- Choose a cover at least equal to the outstanding loan.
- Choose a term that matches the loan period.
- Some plans offer a decreasing cover option, where the sum assured reduces over time roughly in line with a reducing loan balance. This is often called credit-life or loan-cover insurance.
This way, the family can clear the loan and keep the home.
How much cover do you need?
A common starting point is to think about:
- your family's yearly living expenses for the years they would need support
- all outstanding loans
- big future goals such as children's education and marriage
- minus savings and existing cover you already have
Our life cover calculator can help you arrive at a sensible number. Adding riders, such as accident benefit, can increase protection further. Tax treatment depends on prevailing tax laws and the regime you choose.
Things to remember
- Disclose your health and habits honestly in the proposal form. Hiding facts can lead to claim problems.
- Buy early. Premiums are generally lower when you are younger and healthier.
- Keep paying on time. If a premium is missed beyond the grace period, the cover can lapse.
Which LIC plans are of this type?
LIC's term plans include LIC's Digi Term (876), sold online only, and LIC's Yuva Term (875), available through agents. Both are for entry ages 18 to 45 and offer a choice of level or increasing sum assured, with no maturity benefit. See all options on our term plans page.
Find out how affordable high cover can be: get a premium estimate or contact us.