How to buy life insurance for yourself and your family?
What is term insurance?
What are maturity benefits plans?
We will get to know all of it in this article.
Complete Guide to Buying Life Insurance
Finally, welcome to the Complete Guide to Buying Life Insurance.
According to me, life insurance is an insurance product that you should absolutely buy before making any investment, because it is a product for your family in the event that something happens to you as the earning member.
We will try to understand 3–4 things about life insurance:
- First of all, what is life insurance and why is it important?
- Second, what are the basic parts of life insurance that are important for you to know before you buy one?
- Third, what is term insurance and what are maturity benefit plans?
- And fourth, how can you buy life insurance?
Why is Life Insurance Important?
As I explained in our previous post, life insurance basically works on a simple formula: if ‘X’ happens, which in this case is death, then give my family financial protection.
Now, how does this work?
Usually, in the case of life insurance, you buy it at some appropriate age for a specific term or duration. In my opinion, your 20s is the best time to buy insurance—and I will explain why. You should ideally buy insurance till your retirement age. So let’s say you are 25 years old and you will retire at 60. Then you can buy a 35-year life insurance plan, which means you will pay a fixed premium to the insurance company every year. I will also explain its benefits and why paying a fixed amount is a good thing.
At the end of the term, either you will get something (if you have a maturity benefit or endowment plan), or you may not get anything (if you have a term plan).
Term Plan, Maturity Benefit, and Endowment Plans
A term plan may seem like a basic or random kind of product, but in my opinion, it is the most powerful. Let me explain why it seems random.
A term plan says that when you buy life insurance—again, let’s say at age 25—and you take it up to age 60, then you are buying a 35-year term plan. Every year, you pay a premium to the insurance company in exchange for coverage. That means, God forbid, if something happens to you, then your family—your nominee (spouse, parents, etc.)—will receive the insured amount.
But! During those 35 years, if nothing happens to you (which we all hope), then you won’t receive anything. At age 60, despite paying premiums for 35 years, you get no benefit if there’s been no adverse event.
So, it feels like a random product—why would anyone pay premiums for 35 years and receive nothing?
Here’s the reason:
Because the insurance company doesn’t need to return the premium or generate returns, they can offer you maximum coverage at the lowest possible premium. That means, at a very nominal cost, you can get maximum insurance.
How Much Cover Should You Take?
Let’s discuss it.
Usually, if your annual salary is X, then according to me, the minimum cover should be 20 times that amount. That way, your nominee would receive a lump sum equivalent to many years of your income.
For example, if your salary is ₹5,00,000 annually, then the minimum cover should be ₹50,00,000, and ideally ₹1,00,00,000. The best part is that the premium remains fixed for the entire duration.
You may have heard about inflation—and you probably know that the value of money reduces over time. So, if you’re paying ₹5,000–10,000 as an annual premium today, its value will feel negligible in 35 years. Yes, today ₹10,000 feels like a lot, but the beauty of insurance is that it’s a fixed-premium product. What feels difficult now will feel easier in the future.
This is a great benefit of term insurance.
Tax Benefits
Another benefit is that the premium you pay qualifies for deductions under Section 80C.
This section allows you to reduce your taxable income by the premium amount you pay—leading to lower taxes. This is the government’s way of encouraging insurance purchases.
Endowment Plans
Endowment plans are those where you keep paying a premium for a term, and then you receive returns at the end. This could mean:
- Your premiums are returned,
- You receive a monthly income for a few years,
- Or you get lump sums over a period.
There are many variations. But the key point is: you’re asking the insurance company to generate a return on your behalf. In essence, you’re buying an investment product, not just insurance.
My personal recommendation:
This is not expert advice, but I feel you can invest directly and generate better returns than what the insurer would offer.
The Disadvantage of Endowment Plans
The biggest issue is the higher premium.
For example, a ₹1,00,00,000 cover in a term plan might cost you ₹5,000–6,000 annually, but the same cover in an endowment plan could cost you ₹20,000–25,000—or more.
Why pay 3–4 times more for the comfort of a return, especially if you’re capable of investing wisely yourself?
Add-ons to Consider
While buying term insurance or an endowment plan, you should consider add-ons. Remember, you’re insuring your life, but there are other ways your income could stop, such as:
- Critical illness
- Disability due to accident
These risks should be accounted for. Add-ons help.
Important add-ons to consider:
- Critical Illness Add-on – Covers serious illness during the term.
- Disability Add-on – Covers permanent disability that stops you from earning.
- Premium Waiver on Critical Illness – If diagnosed with a critical illness, your premiums are waived.
- Premium Waiver on Disability – Same as above but for disability.
These four are, in my view, essential add-ons.
Which Life Insurance Should You Buy?
There are many products in the market: Max, HDFC, LIC, etc.
In my opinion, two things matter most:
- Reputed Brand – Since life insurance is long-term by nature, choose a brand you trust will last that long.
- Claims Ratio – This refers to how many claims are actually paid. If 100 people file claims and 95 get paid, that’s a 95% claim ratio.
It’s not always 100% because sometimes claims are fraudulent or undisclosed information (like pre-existing illnesses) comes to light, which invalidates the claim.
So be transparent. Disclose everything—your health history, lifestyle, smoking habits, etc.—to avoid future complications for your family.
When Should You Buy Life Insurance?
It’s better to buy it as early as possible.
As I said, the right age is between 25–35 years. If you buy too early, your income might be too low for a large cover. If you buy too late, your premiums will be higher because the risk increases with age.
So, the best balance of income, coverage, and premium happens between 25 and 35.
Final Thoughts
Don’t start investing until you have adequate life insurance in place. A solid life insurance plan acts as the financial foundation for your future planning.
Here’s why you shouldn’t ignore it:
- It offers valuable tax benefits under Section 80C.
- It ensures peace of mind knowing your loved ones are protected.
- It secures your family’s financial future in case of unforeseen events.
- It helps you plan your finances with a sense of responsibility and stability.
Buying life insurance isn’t just a financial decision—it’s an emotional one too. It’s about making sure that your family doesn’t suffer financially when you’re no longer around to provide for them.
Start early, choose wisely, and protect what matters most.
I hope this guide was helpful!
