What is Term Insurance?

Insurance in India is gradually growing. In FY 2025, the average premium per person, or insurance density, rose to USD 97 from USD 95 in FY 2024. Life insurance density also increased, reaching USD 72, up from USD 70 the previous year. Amid this expanding market, term insurance stands out as a simple, cost-effective way to ensure your family’s financial security.

Most people spend years building savings, assets, and a better life for their family, but forget to protect it. That’s where term insurance steps in. It acts like a financial safety net, ensuring your loved ones don’t struggle if something happens to you. 

This guide walks you through everything you need to know about term insurance. It explains how term insurance works, its benefits, and the different types of plans. You will also learn about policy inclusions and exclusions. It shows how to calculate the right coverage and premiums, and helps you choose the right insurer and policy structure. Finally, it gives a step-by-step guide to buying term insurance online. 

How Term Life Insurance Works?

• You pick your sum assured (SA), policy term, and premium payment option. 
• The insurer evaluates your overall profile based on its underwriting guidelines and then decides whether to issue the policy or not.
• Once your term policy is issued, you keep paying premiums to maintain the cover. 
• If you pass away during the term, your nominee receives the chosen benefit.
• If you survive the term, the policy ends without any payout unless you opted for a return-of-premium version.

Note: Such features and eligibility may vary from plan to plan.

Benefits of Term Insurance

• Debt and Dependent Protection: A term plan primarily acts as a replacement for your income and outstanding loans, ensuring your family is financially secure and not burdened with debts if something happens to you.
• Protection Against Goal Failure: It helps safeguard important life goals, including children’s education, rent, childcare, and elder care, so your family’s plans stay on track even in your absence.
• Rider Benefits: Additional riders such as Critical Illness, Accidental Total & Permanent Disability, and Waiver of Premium provide enhanced protection beyond the base sum assured.
• The Advantage of Buying Early: Purchasing a term plan at a younger age not only lowers premiums but also reduces the likelihood of exclusions or premium loadings, as your health profile is cleaner.
• Higher Coverage at Lower Premiums: Term life insurance offers high coverage at more affordable premiums than other types of life insurance.
• Premium Stability: Premiums remain fixed throughout the term plan, and your premium payments are flexible. 
• Flexibility: You get monthly, quarterly, half-yearly, or yearly premium payment options.
• Less Appreciated Perks: Many insurers offer free or discounted medical check-ups, and virtual assessments are increasingly common, adding value beyond the core financial protection.
• Tax Benefits: Under Section 80C, you can claim a deduction of up to ₹1.5 lakh on the premium paid for a term insurance policy. Section 80D allows an additional deduction if the policy includes health-related riders, both under the old regime. Finally, under Section 10 (10D), the death benefit received by the nominee is entirely tax-free.

These are the three main types of term insurance offered by insurers. Meanwhile, check out the add-ons you can opt for and avoid with your term policy:

Note: Such inclusions and exclusions might vary from plan to plan. As per IRDAI rules, if the policyholder dies by suicide within the first year of buying or reviving the policy, the insurer will reject the claim and refund around 80% of the total premiums.

How Much Term Cover do I Need? 

There’s no fixed-term cover that works for everyone. The right term insurance cover depends on your income, expenses, goals, and liabilities.

At Ditto, we use the expense and liabilities replacement method to estimate the term cover you require. To get a better understanding, use this cover calculator to find the ideal cover for you. 

Here’s how the calculator works:

• Input Essentials: Enter your age, income, existing liabilities, number of dependents, and ongoing necessary expenses (exclude luxuries).
• Adjust for Inflation: The calculator factors in rising costs over time, ensuring your coverage keeps pace with future needs.
• Consider Life Changes: Update the calculator for major events like marriage, children, or new loans, which may increase the sum assured required.

Take Note: If you opt for higher coverage, insurers conduct stricter financial and medical underwriting. At Ditto, we recommend not skipping any test. Even if your policy application is declined, early clarity helps you plan and avoid future complications.

If you already have an existing life insurance cover, you may deduct that amount from the recommended coverage. This helps ensure you’re adequately insured without over-insuring or paying unnecessary excess premiums.

How to Calculate my Term Insurance Premium?

Your term insurance premium is calculated based on risk and coverage. Insurers look at several factors, such as:

• Age: The earlier you buy, the cheaper it gets. Buying in your 20s locks in low premiums for the entire policy term.
• Coverage Amount: Higher coverage leads to a higher premium. Insurers may also cap your cover based on income and profile.
• Policy Tenure: Longer terms cost more, and covering yourself till 65–70 is usually practical and cost-effective.
• Existing Liabilities: Loans and expenses help insurers judge affordability and suitable cover.
• Medical History: Conditions like diabetes or high BP raise risk, which increases premiums.
• Gender: Women generally pay lower premiums due to longer life expectancy.
• Lifestyle Habits: Smoking or heavy drinking can push premiums up by 50–100%. Full disclosure is mandatory.
• Occupation: High-risk jobs (defence, emergency services, offshore work) often attract higher premiums or limits on cover.

Ditto’s Take: Buy early, be honest about health and habits, and choose only as much cover as your income can justify.

Learn more about how your term premiums are calculated.

Who Should Buy Term Insurance Plans?

A term insurance plan is meant for anyone with financial dependents or who is tied to future financial responsibilities. You should strongly consider buying a term plan if you are:

• Young Professionals: Starting early helps lock in very low premiums and long policy terms. Even if you don’t have dependents yet, term insurance prepares you for future responsibilities like loans or family planning.
• Newly Married: Marriage brings shared financial responsibilities. A term plan ensures your spouse remains financially secure and protected from income disruption in case of an unfortunate event.
• Working Women: Women contributing financially to the household should have term insurance to replace income, cover liabilities, and secure children’s future. Many insurers offer premium benefits (15% lower than male) for women.
• Taxpayers: Term insurance offers dual benefits, protection plus tax savings. Premiums qualify for deductions under Section 80C of the old regime, and claim payouts are tax-free under Section 10 (10D).
• Self-Employed Individuals: Irregular income and business risks make financial protection crucial. Term insurance acts as a safety net for the family and helps manage liabilities tied to the business.
• NRIs: NRIs with financial ties or dependents in India should opt for Indian term plans. They offer cost-effective coverage and protect family members residing in India.

Factors to Consider Before Buying a Term Insurance Plan

Before buying a term plan, several factors have to be considered, which fall under two buckets: insurer metrics and policy features.

How to Choose the Right Term Insurer

Your insurer’s reliability is just as important as the policy benefits. Evaluate these key metrics before deciding:

• Claim Settlement Ratio (CSR): Shows the percentage of claims settled out of total claims received in a year. A CSR of 97% or above is considered strong. For example, Axis Max Life Insurance reported a CSR of 99.62% (FY 2022–25 average).
• Amount Settlement Ratio (ASR): Indicates the percentage of the total claim amount paid. Since term insurance usually involves full acceptance or rejection of claims, an ASR above 90% reflects fair settlement across claim sizes. Axis Max Life Insurance reported an ASR of 96.20% (FY 2022–25 average).
• Solvency Ratio: Measures financial strength and ability to meet long-term obligations. IRDAI recommends a minimum solvency ratio of 1.5, and anything above 1.8 is generally considered comfortable. Bajaj Life Insurance reported a solvency ratio of 4.37 (FY 2022–25 average), indicating strong financial health.
• Complaint Volume: Shows the number of complaints per 10,000 claims. Lower numbers suggest smoother claim processes. HDFC Life Insurance has one of the lowest complaint volumes at 1.33 (FY 2022–25 average).
• Business Volume and Claims Paid: Large new business volumes and high claim payouts reflect operational scale, experience, and stability. For example, HDFC Ergo has the highest annual business volume of ₹30,560 (Average of FY 22-25) among private life insurers.

How to Choose the Right Term Policy

Once you shortlist a reliable insurer, focus on selecting the right policy structure:

• Assess Your Lifestyle and Responsibilities: Your coverage should reflect your dependents, loans, monthly expenses, future goals (children’s education, spouse’s retirement), and inflation. Do not base it only on income.
• Select Relevant Riders: Riders provide additional protection. Common options include Critical Illness (CI), Waiver of Premium (WoP), Terminal Illness (TI), and Accidental Total and Permanent Disability (ATPD). Choose only those that genuinely add value to your situation.
• Compare Premium Costs: Do not choose solely based on the lowest premium. Compare coverage amount, policy term, and riders. Premiums are locked in once purchased and increase significantly with age, so buying early is beneficial.
• Decide the Policy Term: Coverage should ideally last until your dependents are financially independent and liabilities are cleared. Many people choose coverage up to age 65–70.
• Choose the Premium Payment Term
  • Regular Pay: Pay throughout the policy term.
  • Limited Pay: Pay for a shorter duration, coverage continues longer.
  • Single Pay: One-time upfront payment.
    
    Select based on affordability and long-term cash flow planning.
• Pick the Right Payout Option: Insurers offer lump sum, monthly income, or a combination. Choose what best supports your family’s needs. By balancing insurer reliability with the right policy structure, you can secure strong and dependable financial protection for your family.

How to Buy Term Insurance Online?

Now that you know what term insurance is and how it works, check out the infographic to understand how to purchase one:

Point to be Noted: When you apply for a term plan, the final decision is not limited to the issuance of your policy. It can include rejection, postponement, or a counter-offer such as a higher premium or reduced cover(depending on the overall underwriting). 

At Ditto, we always suggest that our customers be completely transparent and keep their documentation accurate and up to date, because clear disclosures and proper paperwork significantly improve their chances of getting a term policy without any hassle.

Why Choose Ditto for Term Insurance?

At Ditto, we’ve assisted over 8,00,000 customers with choosing the right insurance policy. Why customers like Vijay below love us:

• No-Spam & No Salesmen
• Rated 4.9/5 on Google Reviews by 15,000+ happy customers
• Backed by Zerodha
• Dedicated Claim Support Team
• 100% Free Consultation

You can book a FREE consultation. Slots are running out, so make sure you book a call now or chat with us on WhatsApp!

Ditto’s Take on Term Insurance 

At Ditto, we recommend pure term insurance to protect your family. It offers a high life cover at a relatively low premium. This is because it focuses only on protection and does not bundle insurance with investment.

If you are looking for a term plan from insurers with established track records and affordable riders, we recommend comprehensive plans, which align with your long-term goals. Explore more about how our experts evaluate term plans through Ditto’s cut.