Short answer: Term insurance is pure life cover: you pay a premium for a fixed term and, if you die during it, your nominee gets the sum assured. It is the cheapest way to buy a large cover, which is why it suits anyone with dependants or loans. The main pitfalls are buying too little cover or too short a term, hiding health or habit details on the proposal form, and paying for add-ons you do not need. Since 22 September 2025, individual life policies, including term plans, carry no GST.
Last updated: 13 October 2026.
What term insurance is (and is not)
A term plan pays only on death during the policy term. A basic plan pays nothing if you survive, which keeps premiums low. It is not an investment or a savings product. ‘Return of premium’ variants refund premiums at maturity but cost much more, and the extra premium could often earn more if invested separately. For a wider view of covers, see our insurance basics hub.
Key benefits
- High cover at low cost: a healthy non-smoker in their late 20s or 30s can usually buy a cover many times their annual income for a modest yearly premium.
- Protects loans and goals: the payout can clear a home loan and fund children’s education. See what happens to loans if the borrower dies.
- Fixed premiums: for a regular term plan, the premium is usually locked at the start for the whole term; check your policy schedule.
- No GST: from 22 September 2025, GST on individual life insurance policies was cut from 18% to nil, according to the Department of Financial Services. Group term and group credit life covers still attract GST.
- Tax treatment: under the Income-tax Act, 2025 (in force from 1 April 2026), premiums can count towards the section 123 deduction (the successor of old section 80C), capped at ₹1,50,000 a year, but only if you choose the old regime. The death benefit paid to the nominee is generally tax-free. See our income tax hub and tax on life insurance premiums.
Salient features to understand
| Feature | What it means | What to check |
|---|---|---|
| Sum assured | Amount paid to nominee on death | Enough to replace income and clear debts |
| Policy term | Years of cover | Ideally until your dependants are independent and loans are repaid |
| Premium payment term | Regular, limited (e.g. 10 years) or single pay | Limited pay costs more per year but ends sooner |
| Payout option | Lump sum, monthly income or a mix | Monthly income can help a family that is not used to managing a large sum |
| Riders | Accidental death, critical illness, disability, waiver of premium | Buy only riders you need; compare with standalone covers |
| Free-look period | Window to cancel after receiving the policy | IRDAI’s 2024 policyholder protection rules provide 30 days; check your document |
| Nominee | Who receives the claim | Keep it updated after marriage, birth or divorce |
How much cover do you need? A worked example
Arjun, 32, earns ₹12,00,000 a year. He has a ₹40,00,000 home loan outstanding, wants ₹30,00,000 set aside for his child’s education, and has ₹10,00,000 in savings and investments.
| Need | Amount |
|---|---|
| Income replacement (10 years of income) | ₹1,20,00,000 |
| Outstanding home loan | ₹40,00,000 |
| Child’s education goal | ₹30,00,000 |
| Less: existing savings | – ₹10,00,000 |
| Indicative cover needed | ₹1,80,00,000 |
This simple needs-based method is a starting point. Inflation, a spouse’s income and existing employer cover change the answer. Many people round up and choose a term that runs to around their planned retirement age.
Common pitfalls
- Under-insuring: picking a round number like ₹50 lakh without working out needs.
- Relying only on employer group cover: it usually ends when you leave the job.
- Non-disclosure: not declaring smoking, alcohol, existing illness or other policies. This is the most common reason for disputed claims. Under the Insurance Act, a policy generally cannot be questioned after three years from issue, but honest disclosure from day one avoids disputes altogether.
- Paying for unnecessary features: return-of-premium or bundled savings may cost much more for the same cover.
- Too short a term: cover that ends at 50 while the home loan runs to 60.
- Not telling the family: nominees should know the insurer, policy number and where documents are kept.
- Letting it lapse: missing premiums beyond the grace period can end cover; set up auto-debit.
How to buy sensibly
- Buy early: premiums are based on age and health at entry.
- Compare by claim-related information published by insurers and the cost for the same cover and term.
- Fill in the proposal form yourself and read it before signing; do not let an agent fill health answers for you.
- Complete the medical tests if asked; they protect your family’s claim later.
- Consider a policy under the Married Women’s Property Act for your spouse and children, which keeps the payout for them and away from creditors. Take advice on whether it fits you.
How claims work
The nominee informs the insurer and submits the claim form, death certificate, policy details, ID and bank details, plus medical or police records where relevant. IRDAI sets turnaround times; insurers commonly state that death claims not needing investigation are settled within about 15 days and those needing investigation within about 45 days. If a claim is delayed or rejected, the nominee can complain to the insurer’s grievance cell, then through IRDAI’s Bima Bharosa portal and the Insurance Ombudsman.
Term insurance and loans
If you are taking a home loan or a large personal loan, lenders may offer credit-linked insurance. It must be optional for most loans and its cost shown separately. A personal term plan is usually cheaper per rupee of cover and stays with you if you change lenders, while a lender’s cover often reduces as the loan is repaid. Compare both before agreeing.
Taking a loan? Compare offers from RBI-regulated lenders and check whether any insurance bundled with them is optional.
For lower-income households, government schemes offer basic cover at very low premiums; see our government schemes hub and our guide on insurance for domestic help through government schemes. In your 50s, review whether you still need cover; our money moves for your 50s covers this.
Frequently asked questions
Is GST charged on term insurance premiums?
No, for individual policies. From 22 September 2025, individual life insurance policies, including term plans, are exempt from GST. Group policies still attract GST.
Can I claim tax benefits on term insurance in 2026?
Only under the old tax regime, through the section 123 deduction of the Income-tax Act, 2025, within the ₹1,50,000 overall limit. The new regime does not allow this deduction.
What if I survive the policy term?
A regular term plan pays nothing on survival. Return-of-premium plans refund premiums but cost significantly more.
Can I cancel a term policy after buying it?
Yes. Within the free-look period, you can return it and get a refund of premium after permitted deductions. IRDAI’s 2024 rules provide a 30-day free-look period.
Should I buy term insurance if I have no dependants?
If no one depends on your income and you have no loans that others would have to repay, you may not need it yet. Buying early locks in lower premiums, so review when your situation changes.
Sources
- Department of Financial Services: GST exemption on individual life and health insurance
- IRDAI Bima Bharosa grievance portal
- Income Tax Department e-filing portal
Disclosure: FundsTiger (Gatimaan Finance Advisors Pvt. Ltd.) is a loan marketplace and lending service provider for RBI-regulated lenders. Aparampaar Finance Pvt. Ltd. (Omozing), one of those lenders, is a related party of FundsTiger. This article is general information, not financial advice. Read your loan agreement and KFS before you decide.