5 Factors to Check Before Buying Life Insurance

You are about to sign a piece of paper that will sit silently in a drawer for the next 30 years. The decision you make today about life insurance is one of the highest-leverage choices in your financial life. Buy the right cover and your family is fully protected for decades on a small monthly outflow. Buy the wrong product and you waste lakhs of rupees on commissions, low cover, and confusing returns that never materialise. A five-point check before you commit is enough to avoid the most common traps.

Why This Checklist Matters

Most Indians are sold life insurance, not buying it. Agents push endowment or unit-linked plans because the commissions are high. The buyer agrees because the math is complicated and the trust is misplaced. The result is a country full of households with low cover and high premiums. The fix is a simple checklist that filters out the wrong products before the conversation even starts.

The Five Factors to Check

1. Is the Cover at Least 15 to 20 Times Your Annual Income?

This is the single most important number. The role of a life insurance policy is to replace your income for the years your family would have depended on you. A common rule of thumb is 15 to 20 times your annual income for the working-age primary earner. A 10 lakh rupee annual income should carry a 1.5 to 2 crore rupee cover. If a policy only offers a 25 lakh rupee cover for an income of 10 lakh, walk away. The cover is too small to do its job.

2. Is the Product a Pure Term Plan?

A pure term plan gives the largest cover for the smallest premium. There is no maturity value if you survive the term. That is the design. The job of insurance is protection, not investment. Endowment plans, money-back plans, and ULIPs mix insurance with investment and deliver weak versions of both. For most buyers, a term plan is the right answer. The very small number of cases where another product fits — usually high-income tax-planning or estate-planning needs — should be guided by a fee-only adviser, not a commission-paid agent.

3. Is the Term Length Right?

Pick a term that runs until you no longer need the cover. For most working adults, that is until age 60 or 65. Some readers extend it to 70 if dependents are still around. Avoid the trap of paying for cover into your 80s — by that age, your savings should be replacing the income. A 30-year-old earning today should hold a term up to age 60 or 65 as the default.

4. What Is the Insurer's Claim Settlement Ratio?

The claim settlement ratio is the percentage of claims an insurer pays out. Public-domain figures are published every year by the regulator. Stick to insurers with a ratio of 95% or higher over multiple years. A new insurer with no history is a higher risk. The premium difference between a 95% insurer and the cheapest in the market is rarely large enough to justify the additional uncertainty for your family.

5. Does the Premium Fit Your Budget for 30 Years?

The cheapest premium today is not the right premium if you cannot keep paying it. A lapsed life insurance policy is worth nothing. Pick a premium that fits 5% to 7% of your annual income, leaves room for inflation, and survives a career change. If the premium is too high, reduce the cover slightly or extend the term, but do not buy a policy you might abandon in year three.

The Commonly Missed Items

Two items deserve their own mention because most buyers forget them.

Nomination. Always fill in the nomination form clearly. Update it after every major life event — marriage, birth, divorce. A missing or outdated nomination delays claim payouts and can lead to disputes within the family.

Disclosure. Tell the insurer about every health condition, every cigarette, every prior policy. Non-disclosure is the single biggest reason genuine claims get rejected. A higher premium today is better than a rejected claim later.

For published claim settlement data and the official policyholder protection rules, the IRDAI website is the cleanest source. Bookmark it before you sign any form.

How to Apply the Checklist

Write your annual income on a slip. Multiply by 18. That is your target cover. Open three insurer websites with strong claim ratios. Get an online quote for a pure term plan with that cover, running till age 60. Compare premiums. Pick the cheapest among the three. The whole exercise takes under an hour and will probably save you a few lakh rupees over the next 30 years.

FAQs

Do I need life insurance if I have no dependents?

Not really. Life insurance is for the people who depend on your income. If no one does, your money is better invested for your own future.

Should I buy from an agent or online?

Online direct plans are usually 20% to 30% cheaper for the same cover. Use an agent only if you genuinely need help understanding the product.

Can I increase cover later?

Some plans allow staggered cover that grows with marriage, birth, or home loan milestones. Useful if you expect rapid life changes.