Term life cover

If someone eats because you earn, you need term life cover. A term plan is the simplest insurance there is: you pay a premium every year, and if you die during the policy term, your family receives the sum assuredSum assuredThe amount paid to the nominee if the insured person dies during the policy term.. If you outlive the term, nothing is paid. That is exactly why it is so cheap. A healthy 30-year-old who does not smoke can usually buy ₹1 crore of cover for roughly ₹10,000 to ₹15,000 a year, less than many families spend on mobile data. The same ₹1 crore from a 'savings' policy would cost several lakh a year.

How much cover, and for how long

The quick rule is 10 to 15 times your annual income, plus any loans that would fall on the family, minus what you already have. The better way is to add up what the money must actually do. Take Priya, 32, who earns ₹12 lakh a year, has a ₹40 lakh home loan and two children aged four and seven.

• Replace income until the children are independent: 15 times ₹12 lakh is ₹1.8 crore.
• Clear the home loan so the family keeps the house: ₹40 lakh.
• Fund the two children's higher education: about ₹30 lakh in today's money.
• Subtract existing investments and any cover from work: say ₹20 lakh.
• Cover needed: roughly ₹2.3 crore. Round up, not down; the premium difference is small.

Cover until the people who depend on you no longer do. For most families that is when the youngest child is about 25, or when you retire at 60 to 65, whichever is later. Do not buy cover until age 85 or 99 because it sounds safer. Premiums for those extra decades are steep, and by then your children are earning and your retirement corpus is what the family lives on, not your salary. 'Return of premium' and 'whole life' variants exist to make the plan look like savings; they cost far more for the same protection.

Buying it right

• Disclose everything: smoking, alcohol, past illnesses, family history, your real income, other policies you hold. A hidden fact is the commonest reason a claim is refused. Once a policy has run three years, Section 45 of the Insurance Act stops the insurer from questioning it on grounds of misstatement, so honesty plus time is what protects your family.
• Check the claim settlement ratioClaim settlement ratioOf every 100 death claims an insurer received in a year, the number it paid. Published yearly by the regulator., the share of claims the insurer paid last year, and look for a high number sustained over several years rather than one good year.
• Buy online or directly from the insurer. The cover is identical, the premium is usually lower, and nobody is steering you toward a plan that pays them more.
• Choose level cover with regular annual premiums. 'Limited pay' options ask you to pay the whole policy in 10 years; they are fine if you can afford it, but they are not cheaper.
• RidersRiderAn optional add-on to a policy, such as a waiver of premium on disability, for an extra premium.: a waiver of premium on disability is cheap and useful. Accidental death and critical illness riders can help, but compare them with standalone policies before adding.
• Premiums qualify for Section 80C up to ₹1,50,000 in the old tax regime. Buy for the cover, not the deduction.

Nominee and claim

Name a nomineeNomineeThe person you name to receive the policy money. A spouse, child or parent named as nominee becomes the owner of the money. when you buy, and update it after marriage or a child. A spouse, child or parent named as nominee is a 'beneficial nominee' under current law and receives the money as its owner, not merely as a caretaker. If you want the payout ring-fenced for your wife and children, protected from your creditors and from claims by other relatives, ask to buy the policy under the Married Women's Property Act (MWP ActMWP ActThe Married Women's Property Act, 1874. A term plan bought under it is held in trust for the wife and children and cannot be claimed by the policyholder's creditors.); it is a tick box on the form. At claim time, the nominee informs the insurer, submits the claim form, the death certificate, identity proof and bank details. Regulations require the insurer to settle a clean claim within 30 days of receiving all documents, and to pay interest if it is late. If a claim is refused, write to the insurer's grievance officer first, then to the Insurance Ombudsman; both are free.