Why this matters more than your portfolio
Most Indians spend hours optimising mutual fund returns and minutes choosing insurance. It's backwards. A bad SIP costs you a few percent. A missing term plan when you have dependents, or a thin health cover during a hospital crisis, can wipe out 20 years of savings in one bad month.
"Insurance is not an investment. It's a hedge against the worst version of your life."
The two policies you actually need
For 95% of working Indians, just two policies do the heavy lifting. Everything else (endowment, ULIP, money-back, child plans) is mostly noise sold on commission.
- Pays your family if you die during the term
- Cheapest form of cover — ₹15K–25K/year for ₹1 Cr at age 30
- No maturity benefit, and that's the point
- Buy it once, forget it
- Pays hospital bills above your deductible
- Family floater is most cost-effective for couples
- Should cover modern treatments and day-care
- Renew every year — no gap, ever
- High commissions, locked-in for 5+ years
- Net returns usually 4–6% — worse than PPF
- Insufficient cover for the premium paid
- Returns hidden behind opaque bonuses
- Term + SIP combo always wins long-term
- "Tax-saving" is now a weak argument under new regime
How much term cover do you really need?
Most agents sell ₹50 lakh or ₹1 Cr because those are round numbers. Your actual need is usually higher, and worth calculating once.
Why 15–20×? Your dependents need income for roughly your remaining working years, and inflation eats into purchasing power. A 15× multiple invested at 7–8% should generate close to your current income indefinitely.
A worked example
Take a 32-year-old earning ₹18 lakh/year, with a ₹40 lakh home loan and ₹15 lakh in investments:
- Income replacement: ₹18 L × 18 = ₹3.24 Cr
- Plus home loan: + ₹40 L = ₹3.64 Cr
- Less existing investments: − ₹15 L = ₹3.5 Cr cover needed
Round to ₹3.5 Cr or ₹4 Cr. The premium difference between ₹2 Cr and ₹4 Cr cover at this age is often just ₹6,000–10,000/year — a rounding error compared to the protection it buys.
SBI Life and IRDAI data suggest the average insured Indian is covered for roughly 8% of their economic value. The global benchmark is closer to 70%. Most readers of this page are dramatically underinsured.
What to look for in a term plan
- Claim Settlement Ratio (CSR) — at least 95% over the last 3 years. Check IRDAI annual report, not the insurer's website.
- Coverage till age 60–65, not 75 or 80. After 60 your cover need drops sharply.
- Pure term, level premium — premium fixed for the full term, no return-of-premium gimmick.
- Disclose everything — every illness, every habit, every doctor's visit. Non-disclosure is the #1 reason claims get rejected.
- Critical Illness rider (optional) — useful if affordable; otherwise a separate health top-up may serve better.
"Return of Premium" term plans give your money back if you survive. Sounds great, costs 2–3× more in premium, and the "return" loses out to inflation. You're better off buying pure term and investing the difference in an index fund.
How much health cover do you really need?
The honest answer: more than you think, especially in metros. A single cardiac event in a tier-1 Mumbai or Delhi hospital can run ₹8–15 lakh today, and medical inflation in India runs at 14% a year — roughly double general inflation.
The right cover by life stage
| Stage | Suggested cover | Notes |
|---|---|---|
| Single, 25–30, metro | ₹10–15 lakh base | Plus corporate cover if available |
| Married couple, 30–40 | ₹15–25 lakh floater | + ₹50 lakh super top-up |
| Family with kids | ₹25 lakh floater | + ₹50L–1Cr super top-up |
| Parents 60+ (separate policy) | ₹10–25 lakh each | Don't combine with family floater |
The base + super top-up combo
The smartest structure for most families: a smaller base policy (say ₹10 lakh) plus a super top-up of ₹50 lakh that kicks in beyond the base. Why? A ₹50 lakh super top-up can cost less than upgrading the base policy by ₹10 lakh — same total cover, lower premium.
Corporate health insurance disappears the day you change jobs, get laid off, or retire. By then you may have a pre-existing condition that makes a personal policy expensive or impossible to buy. Always carry your own policy alongside corporate.
What to look for in a health policy
- Cashless network — your hospital of choice should be in the network
- Room rent capping — avoid policies with sub-limits like "1% of sum insured per day"
- Pre/post-hospitalisation cover — at least 60/90 days
- No co-pay for the under-50 segment
- Restoration benefit — sum insured restored if exhausted in a year
- Day-care procedures — at least 500+ covered (modern surgeries don't need 24-hour stays)
- Pre-existing disease (PED) waiting period — shorter is better, ideally 2–3 years
- No claim bonus — sum insured grows by 10–50% for claim-free years
The mistakes that cost the most
- Hiding medical history at proposal — biggest cause of rejected claims
- Buying because of "tax saving" — buy because of need, not Section 80D
- Letting renewal lapse — pre-existing waiting period restarts
- Mixing investment and insurance — endowment plans, ULIPs, money-back
- Buying late — term insurance premium at 35 vs 30 is 30–40% higher; at 40 it's nearly double
- I have term cover of at least 15× my annual income
- Term covers me until age 60 or 65
- I bought pure term (no return-of-premium)
- I have personal health cover beyond corporate
- My family floater is at least ₹15–25 lakh
- I have a super top-up if base cover is under ₹25 lakh
- Parents 60+ have their own separate policy
- I disclosed every medical detail at the proposal stage
- I'm not paying for any "investment-cum-insurance" plan
Coming next: Reading Your Portfolio
XIRR, alpha, beta — the metrics that actually tell you if you're winning.