Most people in India buy life insurance for the wrong reason. Not because they’ve thought carefully about protecting their family’s financial future — but because an agent showed up in March with a tax-saving product and a deadline.
The result is a generation of policyholders who are over-insured in low-coverage endowment plans and under-insured where it actually matters.
The case for term life insurance — and why it’s still underutilised
A term life insurance plan is the most straightforward financial product available. You pay a fixed premium for a defined period. If you pass away during that term, your family receives the sum assured. If you survive the term, the policy ends. There’s no maturity benefit, no investment component, no bonus.
That simplicity is exactly why it delivers such high coverage at low cost. A 35-year-old in good health can buy Rs. 1 crore of life cover for approximately Rs. 8,000 to 12,000 per year — less than Rs. 1,000 per month. The same amount in an endowment plan buys perhaps Rs. 8 to 12 lakhs of cover at four to five times the premium.
The arithmetic isn’t subtle. Yet term insurance still accounts for a relatively small share of new life insurance policies sold in India. The commission structure of the industry has something to do with that.
How much life cover is actually enough?
A common benchmark is 10 to 15 times your annual income. That’s a reasonable starting point, but the right answer is more specific to your situation.
What would your family need to maintain their current lifestyle if your income stopped permanently? Factor in outstanding loans — home loan, vehicle loan, business loans. Consider your children’s education costs. Think about how long your spouse would need income support before becoming financially independent, if at all. The number that emerges from that honest accounting is your actual coverage requirement.
For most working adults in India’s urban centres, that number sits somewhere between Rs. 75 lakhs and Rs. 2 crores. Many existing policyholders are covered for Rs. 5 to 10 lakhs.
Group term life — an undervalued employee benefit
Group Term Life Insurance provided by an employer offers a death benefit to an employee’s family if the employee passes away during the period of employment. It’s typically priced at significantly lower rates than individual policies, because the insurer is covering a pool of lives rather than an individual.
What many employees don’t realise is that their employer’s group life cover ceases the moment they resign or are retrenched. If they haven’t arranged individual cover in the meantime — or if health issues have developed that make individual cover expensive — there’s a protection gap that can emerge at exactly the wrong moment.
Employers can strengthen this benefit by offering a voluntary top-up option, allowing employees to buy additional cover at group rates for themselves and their dependants. It costs the employer almost nothing and is one of the most practically useful benefits a firm can offer.
Where endowment plans fit — and where they don’t
Endowment plans have their place. For someone who struggles to save without a structured commitment, an endowment plan creates a forced savings habit with insurance bundled in. For specific goals like a child’s education with a defined 15-year horizon, the guaranteed maturity benefit has a role to play.
Where endowment plans don’t fit is as the primary or only life insurance a family holds. The coverage they provide relative to the premium paid is simply too low to replace an income earner’s contribution to a household.
The practical approach most financial advisors recommend — and which we see reflected in how financially well-prepared families are structured — is to separate insurance from investment. A term plan for protection. Mutual funds, PPF, or NPS for wealth building. An endowment plan, if at all, for a specific goal.
If you’re reviewing your family’s life insurance coverage or looking at group life options for your workforce, the Beyond Insurance team can help you understand what you have and what you actually need. Get in touch for an honest, no-pressure conversation.
