Term Insurance

Why Almost Nobody Buys Term Insurance

Three objections come up with such regularity they feel scripted. The first: "I already have insurance from work." The second: "I have a LIC policy." The third — usually quieter — is not so much an objection as a feeling: that paying for something that only pays out if you die, and returns nothing if you live, is money wasted.

Each has a surface logic. None of them survives contact with actual numbers.

In the Indian IT sector, where average employee tenure runs 3–4 years per company, a 36-year-old product manager will likely change employers four to six times before retirement. Each transition creates a coverage gap. If a health condition develops during one of these gaps — elevated blood sugar, blood pressure, weight threshold crossed — the insurer may load his premium, add exclusions, or decline coverage. The employer cover he relies on can become, in this scenario, the reason he cannot get affordable insurance when he most needs it.

There is a reason LIC Jeevan Anand — one of the most sold endowment products in India for decades — was withdrawn from sale in October 2024. The 5–6% IRR it delivered was not the return of a product designed to serve financial protection needs. It was the return of a product designed to blend poorly performing investments with inadequate insurance in a package that felt like both.

The rebellion comes from the Indian cultural relationship with saving — the instinct that money leaving the household should produce an asset or a corpus. This is a healthy instinct in every other financial context. It actively sabotages the insurance decision, driving people toward products that return premiums at the cost of adequate coverage, or no individual policy at all.

The Three Objections — Examined

Calculating the Actual Need

Here is Saurabh's specific situation, calculated properly. His family needs to replace his income for the rest of his working life if he dies. Not the full ₹24 lakh — household expenses run at approximately ₹12 lakh per year (₹1 lakh per month in Bengaluru, excluding the home loan EMI).

The calculation for how much lump-sum capital it takes to generate ₹12 lakh per year for 24 years uses the present value of an annuity formula. At 8% assumed investment return, the PV factor for 24 years is 10.53. Multiplying: ₹12 lakh × 10.53 = ₹1.26 crore. That is the minimum corpus needed, invested conservatively, to replace his income for 24 years.

To this, add the home loan outstanding: ₹38 lakh. The family should not carry debt on an absent income. Add the approximate cost of educating both children to graduation — conservatively ₹15 lakh each in today's money, ₹30 lakh total.

Saurabh's existing cover: ₹48 lakh (group term) + ₹10 lakh (LIC endowment) = ₹58 lakh. Total minimum coverage need: ₹2 crore. The gap: ₹1.42 crore.

India's insurance penetration stood at just 2.7% of GDP for life insurance in FY 2024-25, according to the IRDAI Annual Report — against a global average of 3% for life insurance alone and 7.3% for all insurance combined. The protection gap is not a data problem. It is a misunderstanding problem. People believe they have cover when what they have is a placeholder.

Saurabh's Coverage Audit

Why We Accept a ₹1.42 Crore Gap

Saurabh knows, somewhere, that the numbers are not right. He is a product manager. He thinks analytically about user flows and conversion funnels for a living. He is entirely capable of running this calculation. The reason he hasn't is that the calculation produces a number he doesn't want to sit with — not because it will frighten him, but because acting on it requires spending money on something that, in every conceivable scenario where he benefits from buying it, he is not there to benefit.

That is a genuinely uncomfortable asymmetry. Insurance is the only financial purchase where the product's full value is realised only by people who will not be in the room. It requires you to act — now, today, when you are healthy and earning and busy — for an outcome that is entirely contingent on your absence.

The LIC policy especially serves a specific psychological function: it is insurance. The premium receipt confirms it. It provides enough of a signal of financial responsibility that the deeper question — of whether the sum assured is adequate — does not need to be asked. The signal is real. The protection is not proportionate.

In practice, the people who delay buying term insurance are almost never the ones who cannot afford it. At ₹15,000 per year, term insurance for a 36-year-old male non-smoker covering ₹1 crore for 24 years costs less than a single month's contribution to a PPF account. The ones who delay are the ones who have constructed a picture of their insurance situation that feels complete — and find it easier to leave the picture intact than to examine it numerically.

The Psychological Barriers — Named

What The Same Money Buys

His LIC endowment: ₹18,000 per year. Sum assured: ₹10 lakh. What ₹15,000 per year buys at 36, male, non-smoker, purchasing a 24-year term policy online from a major private insurer: ₹1 crore of pure term cover. The premium is ₹3,000 less per year. The coverage is ten times greater.

This comparison is not a trick of framing. The ₹10 lakh from the endowment includes a maturity benefit — at 5–6% IRR over twenty years, Saurabh's ₹18,000 annual premium will produce an approximate maturity value of ₹6 lakh. He gets his premiums back, plus a modest return. The maturity feature is real.

The maturity benefit is not worthless. But it is worth examining whether ₹6 lakh returned in seventeen years — at a real return of roughly negative two percent after adjusting for 7% inflation — justifies paying ₹3,000 more per year and accepting a death benefit one-tenth the size.

If Saurabh dies in year eight, his family receives ₹10 lakh from the endowment. Under the term policy, they receive ₹1 crore. The maturity feature costs his family ₹90 lakh in death benefit in the one scenario where it matters most.

GST on term insurance was removed effective September 22, 2025, following the GST reforms 2.0 notification. The quoted premium is now the premium paid — no additional tax on top. This reduces the effective cost of term cover purchased or renewed after that date.

Why Earlier Is Not Just Cheaper — It's Structurally Safer

At 36, a ₹1 crore term policy for 24 years costs approximately ₹15,000 per year. If Saurabh waits until 42 — when the children are older, the home loan is more paid down, the urgency feels less acute — the same ₹1 crore cover for the remaining 18 years costs approximately ₹20,000 per year.

The annual premium differential is ₹5,000. Over the 18-year remaining term, that adds up to ₹90,000 in additional cumulative premiums paid for identical coverage. More importantly, six years of delay means six years of his family being exposed to the ₹1.42 crore gap.

Every year of delay is locked in for the full policy term: a 36-year-old who buys today pays ₹15,000 per year for 24 years. A 42-year-old who waits six years pays ₹20,000 per year for 18 years. The total premiums paid are coincidentally similar — but six years of the coverage gap remain open, and a health development in those years can change the underwriting outcome permanently.

This is before accounting for any adverse health developments. The underwriting consequence of a single blood test showing elevated HbA1c can mean a premium loading of 25–50% — or, in some cases, a decline. At 36, the probability of a loading is low. At 42, it is meaningfully higher. The insurance product actively rewards the 36-year-old who acts today.

Four Steps — One Sunday Afternoon

On which insurer to use: the claim settlement ratio is the only metric that matters at the point of purchase. The industry has converged to very high levels — 99%+ across all major names. CSR is no longer a strong differentiator. More important variables: premium stability, policy terms around revival and reinstatement, and whether the claim process is straightforward enough for a grieving family to navigate.

Claim Settlement Ratios — Major Insurers

The End of the Story

Divya asked again on a Tuesday. On a Wednesday afternoon, Saurabh opened an IRDAI-registered online insurance aggregator, entered his details, compared three plans in eleven minutes, and purchased a ₹1.5 crore term policy for ₹19,800 per year.

He did not tell her immediately. He forwarded the policy document to their shared email folder, made a note in the password manager with the policy number and the claim helpline, and at dinner that evening said, quietly, that she should check her inbox. She opened her phone and read the policy confirmation. She didn't say much. She passed him the dal.

Here is what Saurabh's insurance stack looks like after one decision and one Sunday afternoon. He still has the employer group cover: ₹48 lakh, employment-linked, cost zero. He keeps the LIC endowment: three years of premiums are already paid, surrender value is minimal, and the coverage is now a supplement rather than his primary protection.

He has added a ₹1.5 crore term policy, online, 24-year term, ₹20,000 per year including a basic critical illness rider. Total standalone cover available regardless of employment: ₹1.6 crore. Annual cost: 0.83% of his annual income.

The coverage gap is gone. The Sunday evening question from Divya has an answer that is specific, not approximate. Saurabh is no longer the primary financial risk in his own household. He is its anchor.

What Pure Term Insurance Guarantees — and Does Not

Questions 01 – 05

Questions 06 – 10