When it comes to financial planning, the toughest product to explain to someone is a term insurance. People very well understand the importance of health insurance when you explain them. They are eager to understand the risks and rewards of mutual funds. But when it comes to term insurance, most people feel it’s a waste of money. 

Term insurance is a safety net that we buy and hope we never have to use it. And, this is the biggest challenge. People feel that they should put the money in something that grows and gives a return. 

In my decade-long career, I’ve seen people often prioritize EMIs, vacations, gadgets, and other immediate needs over long-term protection. But, as a professional, I understand the value of term insurance and feel it’s my responsibility to educate people on the matter. Because it’s for everyone’s benefit.

What is a Term Insurance?  

Term insurance is a life insurance policy that covers you for a specific period, or ‘term.’ If something happens to you during that time, your family gets a lump sum payout. If not, the policy just ends once the term is over.

The key features that make term insurance stand out include –

• Fixed Term – You choose how long you want to be covered, depending on your needs and stage of life. The term could be 5, 10, 20, or even 30 years.
• Death Benefit – If you’re no longer around during the term, your loved ones receive a fixed amount to help them stay financially stable.
• Budget-Friendly Premiums – It’s one of the most affordable ways to get high life cover. You pay less, but your family gets more.
• Pure Protection – There’s no savings or returns involved. Term insurance is all about protecting your family when they need it most.
• No Maturity Value – If the ensured person is alive till the end of the term and that’s what we all hope for), the policy simply ends at the end of the term.

Why Should You Buy a Term Insurance Plan?

“Why buy term insurance when there’s no return?” is the most common question clients ask when they are introduced to term insurance. Standing in their shoes, I would say, that’s definitely the right question. Investments in mutual funds, stocks and other assets that grow sounds like a smarter choice when compared to something where you pay installments hoping the money never comes back.

But, one thing most people fail to understand is ‘term insurance is a protection not an investment’. Comparing term insurance with investment is not an apple-to-apple comparison. 

It is similar to asking why have fire extinguisher when we are neither using it nor it is growing in value. We buy a fire extinguisher so that if something goes wrong, we are not left helpless.

Here’s why term insurance still matters, even if it doesn’t “give returns”:

• It replaces your income when you’re not around. No mutual fund will send money to your family tomorrow if something happens to you today.
• It keeps your long-term goals on track — even in your absence. Child’s education, home loan, spouse’s day-to-day expenses — the payout from term insurance ensures your plans don’t fall apart.
• It’s affordable, which means you can still invest elsewhere. Premiums are so low, you can secure your family and build wealth through other instruments like SIPs or PPF.
• It gives peace of mind. Knowing your loved ones won’t struggle financially is a return that doesn’t show up in numbers — but matters the most.

We all hope for a smooth ride in life. But if there’s even a slightest chance of a storm ahead, wouldn’t you want your family to have a strong anchor to hold on to?

Term insurance is that anchor — it doesn’t promise to sail you faster, but it will keep you steady when the unexpected hits.

When Is the Right Time to Buy Term Insurance?

If you’re wondering when to buy term insurance, the simple answer is: the sooner, the better.

Many people wait — thinking they’ll buy it “later” when they’re older, earning more, or have bigger responsibilities.
But life doesn’t wait. And neither do insurance premiums.

Here’s why it’s smart to start early:

• Lower Premiums:
  When you’re young and healthy, the cost of term insurance is way lower. You can lock in a small premium for a big cover — and that rate stays fixed for the entire term.
• Health Advantage:
  No one can predict health issues. Buying early means you get coverage without worrying about illnesses that could either raise your premiums or lead to rejection later.
• Future-Proofing Your Family:
  Even if you don’t have kids or loans yet, life can change quickly. Having term insurance in place means you’re prepared — no matter when those big life events happen.

Think of it like planting a tree. You don’t plant it when you need shade today. You plant it early so by the time you truly need it, it’s already standing tall, ready to protect.

How Much Term Insurance Do You Really Need?

Okay, so you’ve decided to buy term insurance but don’t know how much would be enough? Is ₹50 lakhs okay? Or should you go for ₹1 crore? ₹2 crores?

Don’t worry. Everyone begins at the same point. But, honestly speaking there’s no one-size-fits-all answer to this question.  Our life, responsibilities, and dreams are unique and so is our coverage need.

Here are a few simple ways to figure it out:

1. Income Replacement Method

The income replacement method is very simple and straightforward. It is a rough calculation of how much are you going to earn (given present scenario) and give your family that replacement amount.  

To calculate this you just multiply your annual income by the number of years you plan to keep working.

For example:
₹10 lakhs a year × 25 working years = ₹2.5 crore
That’s what your family would need to stay financially secure if you’re not around.

2. Human Life Value (HLV) Method

The Human Life Value method goes a bit deeper — instead of just calculating your salary, it considers your actual value to your family in financial terms.

It looks at things like your current income, future potential earnings, your lifestyle expenses, liabilities (like loans), and savings.

In short, it answers: If you weren’t around, how much future wealth would your family miss out on?

It’s a more customised and realistic way to calculate your ideal coverage.

To know more about this method, click here.

3. Needs-Based Calculation

This one focuses on your family’s actual future needs rather than your income.
It takes into account things like:

• Children’s education and marriage
• Home loan or car loan repayments
• Monthly living expenses
• Any other financial goals you had planned for them
  

Once you’ve added all of that, subtract your existing savings or investments. What’s left is the shortfall — and that’s the amount your term plan should cover.

[The Thumb Rule: If none of the methods feel apt you should follow the general rule of thumb – your cover should be 10–15 times your annual income.]

What Do Insurers Check Before Offering Term Insurance?

You might already know insurance are subject to approval from the insuring company. So, Before an insurer says “yes” to your term plan, they do a quick reality check to understand you better. It is to assess the risk fairly so they can offer you the right coverage.

Here’s what they usually look at:

• Your Age
  The younger you are, the lower the risk  and usually, the lower the premium too.
• Annual Income
  This helps insurers figure out how much cover you can reasonably go for. After all, a term plan should fit your life, not stretch it.
• Medical History & Pre-existing Conditions
  If you’ve had any health issues in the past or are managing one now, they’ll take that into account.
• Lifestyle Habits
  Things like smoking or regular alcohol consumption can increase risk, and insurers will ask about them honestly.
• Body Mass Index (BMI)
  Your height and weight give a quick snapshot of your overall health.

Heads up: If you’re already dealing with a serious illness like cancer or advanced heart disease, your application may be declined — but don’t let that discourage you. Some insurers do offer limited cover options or critical illness plans.

Final Thoughts

Life doesn’t come with guarantees but your financial planning can.

While the basics are simple, choosing the right cover and knowing how much is ‘enough’ isn’t always easy. That’s where a financial expert can really help — to guide you, crunch the numbers, and make sure your family’s future is secure even when you are not there taking care of them.

Remember your peace of mind is just one right decision away.