Term insurance is supposed to be simple. You pay a premium, you get coverage, and if something happens to you, your family receives the sum assured. Clean, straightforward, no complications. Yet somehow, when it comes to actually buying a policy, people make decisions that leave their families vulnerable or end up paying far more than they should. The problem isn’t the product itself. It’s the way we think about it.
Most buyers treat term insurance like a checkbox on their financial to-do list. Get it done, move on. But the choices you make when buying term insurance, the coverage amount, the policy duration, the riders you add or skip, and even the insurer you choose, can have consequences that only become apparent years later. By then, it’s often too late to fix without starting over, and starting over means higher premiums, fresh medical tests, and potentially losing out on coverage if your health has changed.
Underestimating How Much Coverage You Actually Need
The most common mistake is buying too little coverage. People hear that term insurance is cheap and think a ₹50 lakh or ₹1 crore policy sounds like a lot of money. It does, until you actually break down what your family would need if you weren’t around. If you have a home loan of ₹40 lakh, that’s almost the entire sum assured gone right there. Add in your children’s education costs, which can easily run into ₹20 to ₹30 lakh for quality higher education, and daily living expenses for your family for the next 15 to 20 years. Suddenly, ₹1 crore doesn’t seem so large anymore.
A practical way to think about coverage is to calculate your annual income and multiply it by 10 to 15 times. If you earn ₹10 lakh a year, you should be looking at coverage between ₹1 crore and ₹1.5 crore at minimum. That gives your family enough runway to maintain their lifestyle, pay off debts, and handle future expenses without immediate financial pressure. Term insurance premiums are calculated based on age, health, and coverage amount. The difference in premium between ₹50 lakh and ₹1 crore coverage when you’re in your late 20s or early 30s is surprisingly small. But the protection gap is massive. Don’t shortchange your family’s future by trying to save ₹2,000 or ₹3,000 a year in premiums.
Picking the Wrong Policy Duration
Policy tenure is another area where people get it wrong. Some buyers choose a 20-year term because the premium is lower than a 30 or 40-year term. But if you’re 30 years old with young children, a 20-year policy only covers you until you’re 50. Your kids might still be in college, your home loan might not be fully paid off, and your spouse might still be financially dependent on your income. What happens if something occurs after the policy expires? You’re back to square one, trying to get new coverage in your 50s when premiums are significantly higher and health complications might have developed. The smarter approach is to match your policy tenure with your financial responsibilities. If your youngest child is 5 years old, you need coverage for at least the next 20 to 25 years until they’re financially independent. If you have long-term debts, your coverage should extend until those are cleared. It’s better to have coverage you don’t end up needing than to need coverage you no longer have.
Ignoring Riders That Could Save Your Family
Riders are optional add-ons that extend your term insurance coverage beyond just death benefit. Many people skip them entirely, either to keep premiums low or because they don’t fully understand what they offer. That’s a mistake. A critical illness rider, for instance, pays out a lump sum if you’re diagnosed with a serious illness like cancer, heart attack, or stroke. This money can cover treatment costs, replace lost income during recovery, and help your family manage financially while you’re unable to work. Without it, a major illness could drain your savings and force you to dip into investments meant for other goals. Accidental death benefit riders provide an additional payout if you die in an accident. Given how common road accidents are in India, this isn’t a far-fetched scenario.
The extra premium is usually minimal, but the additional coverage can make a significant difference to your family. Waiver of premium rider is another one worth considering. If you’re diagnosed with a critical illness or become permanently disabled, this rider ensures that your future premiums are waived, but your coverage continues. You don’t have to worry about keeping the policy active during a time when you might not be earning. Not every rider is necessary for every person, but dismissing them outright without understanding their value is shortsighted. Evaluate your specific risks and financial situation before deciding.
Choosing an Insurer Based Only on Premium
Price matters, obviously. But when you’re comparing term insurance policies, the cheapest option isn’t always the best one. What really matters is whether the insurer will pay the claim when the time comes. Claim settlement ratio is one of the most important metrics to look at. It tells you what percentage of claims the insurer has settled in a given year. If an insurer has a 95% claim settlement ratio, it means they’ve paid out 95 out of every 100 claims. A ratio below 90% should raise questions.
You also want to look at claim settlement timelines. Some insurers settle claims within weeks, while others drag the process on for months, putting families through unnecessary stress during an already difficult time. Understanding which companies consistently deliver on their promises helps you make a more informed choice. Choosing the best term insurance plan isn’t just about comparing premiums on a spreadsheet, it’s about evaluating the insurer’s track record, financial stability, and customer service quality. Customer reviews and complaints can also give you insight into how insurers handle claims and disputes. An insurer with a strong claim settlement record and transparent processes is worth paying slightly higher premiums for, because you’re buying peace of mind, not just coverage.
Delaying the Purchase Because You’re Young and Healthy
This is perhaps the biggest mistake of all. Many people in their 20s think they don’t need term insurance yet. They’re healthy, they don’t have major financial responsibilities, and death feels like a distant concern. So they postpone buying coverage until they’re older, maybe after marriage or after having children. Here’s the problem with that logic. Term insurance premiums are based on age and health at the time of purchase. A 25-year-old buying ₹1 crore coverage might pay ₹8,000 to ₹10,000 a year. The same person buying the same coverage at 35 could pay ₹15,000 to ₹18,000 a year.
Over the life of the policy, that’s a difference of several lakh rupees. And that’s assuming their health remains perfect. If you develop diabetes, hypertension, or any other condition in your 30s, your premium could be even higher. In some cases, insurers might reject your application altogether. Buying term insurance early locks in lower premiums for the entire policy duration. Even if you don’t have dependents right now, you likely will in the future. And when that time comes, you’ll already have coverage in place at a rate you couldn’t get anymore.
Not Reviewing Your Coverage as Life Changes
Term insurance isn’t a set-it-and-forget-it product. Your coverage needs change as your life evolves. When you first buy a policy in your late 20s, you might not have a home loan, children, or ageing parents depending on you. Ten years later, all of that could have changed. If your financial responsibilities have increased significantly but your coverage hasn’t, there’s a gap.
The solution is to review your term insurance every few years, especially after major life events like marriage, having children, buying property, or taking on new financial commitments. You can increase your coverage by buying an additional policy if needed. Yes, the new policy will have a higher premium based on your current age, but it’s better than leaving your family underinsured.
The Real Purpose of Term Insurance
At its core, term insurance is about replacing your income and protecting your family’s financial future if you’re not there to do it yourself. It’s not an investment, it won’t give you returns, and ideally, you’ll never need to use it. But that’s exactly the point. It’s a safety net, and safety nets are only valuable if they’re strong enough to actually catch someone when they fall. Getting term insurance wrong, whether by underinsuring, choosing the wrong tenure, skipping necessary riders, or delaying the purchase, doesn’t just mean wasting money. It means potentially leaving your family in financial distress at the worst possible time. The good news is that avoiding these mistakes is straightforward. Buy enough coverage to actually protect your family, choose a policy duration that matches your responsibilities, evaluate insurers based on reliability and not just price, and buy coverage while you’re young and healthy. Term insurance is one of the simplest and most effective financial tools available. But only if you use it correctly.
