Life cover as a term policy

Term life cover pays a chosen sum if you die during the term, and pays nothing if you do not. That bareness is the point. This chapter sizes the sum and lists the features that quietly turn a term policy back into a savings product.

Why term cover is the clean version

You are buying the transfer of one event: death within a stated number of years, while people depend on your income. Because the policy does not try to return your premiums, the premium can be small relative to the sum assured. A savings-linked life policy spends much of the premium on the investment book and on charges, and the death benefit is often a modest multiple of the premium rather than a replacement of twenty years of income. If the job is ‘replace income’, the term policy is the tool that is shaped like the job.

A way to size the sum, without false precision

Add up what would actually have to be paid if the income stopped. Debts you would not want anyone else to carry, including a home loan. A fund for the years until children are independent, which you can think of as an annual cost times those years, not as a single emotional number. Any one-time costs you consider non-negotiable. Subtract assets that already exist and would be available: the emergency fund, investments that are not earmarked for something else, any cover the employer provides that would not vanish in a way you have failed to read. The difference is the gap. Round it. Then look at the premium for a term that lasts as long as the gap is real — often until the age at which the household no longer depends on this income.

Suppose the gap comes out near ₹1.5 crore and the dependence lasts about 18 years. You price an 18-year term for that sum, in your health class, from more than one insurer. The premium is the cost of the gap. If it does not fit the monthly surplus, the honest edits are a slightly shorter term, a slightly smaller sum, or a change in the debts — not a switch to a policy that advertises a larger number and pays for it by shrinking the real protection.

Features that change the product

• A return-of-premium rider gives the premiums back if you survive. You are paying extra so that the insurer can hand your own money back. Compare the extra premium with simply investing it.
• A bundled investment account inside the policy reintroduces the charges the term policy was chosen to avoid.
• An insurer you have not checked for claim-settlement record and exclusions is a cheap premium that may be cheap for a reason you will discover at the worst time. Read the suicide clause, the non-disclosure rules, and what happens if a premium is late.
• Employer cover that ends when the job ends is not a substitute for a personal policy. It can sit on top of one.

What to remember

• Term cover pays if you die during the term. Survival pays nothing. That is why the sum can be large relative to the premium.
• Size the sum from debts and the years of dependence, minus assets already available.
• Price the same sum and term at more than one insurer, and read the claim rules.
• Return-of-premium and bundled investment change the product back toward a savings plan.
• Cover that belongs to your employer is not cover you own.