Why Term Insurance Should Be Your First Financial Priority in 2025

In an era when financial planning is more critical than ever, one aspect is often overlooked until it’s too late to secure your family’s financial future. While Indians are increasingly investing in mutual funds, stocks, and real estate, a fundamental protection mechanism remains underutilized: term insurance.

Recent data suggests that despite growing awareness, less than 20% of Indians have adequate life insurance coverage. This gap becomes particularly concerning when you consider the rising cost of living, educational expenses, and healthcare inflation. The question isn’t whether you need term insurance; it’s whether you can afford to delay getting it.

Understanding the Real Purpose of Term Insurance

Term insurance is very different from conventional insurance products. It is purely protective and does not involve any investment element. As a result, it’s very inexpensive. For a 30-year-old non-smoker, for instance, a ₹1 crore cover can cost as low as ₹10,000-15,000 a year, less than what many spend on their monthly entertainment subscription.

The main goal is quite simple: to ensure that if something unfortunate happens with the breadwinner, the family’s financial responsibilities do not become overwhelming. This covers home loans, children’s education, everyday living expenses, and maintaining the same lifestyle.

Consider this: a 35-year-old professional earning ₹15 lakhs per annum has a home loan of ₹50 lakhs, plans to fund higher education for two children at an estimated ₹1 crore each, and intends to make adequate provisions for a spouse to continue the current lifestyle. In the event of his untimely demise without term insurance, his family will struggle with debt and unfulfilled dreams.

The Cost of Waiting: Why Age Matters

One of the biggest mistakes people make is postponing term insurance purchases. Not only do premium costs rise sharply with age, but more importantly, health complications that develop over time can result in higher premiums or even the rejection of an application.

For ₹1 crore coverage, a 25-year-old could pay ₹8,000 a year, whereas a 40-year-old may pay over ₹20,000 for the same coverage. This delay can lead to an increase of over lakhs in premium payment over a 30-year policy term. In addition, conditions like diabetes, hypertension, and cholesterol abnormalities, which are often present among Indians entering their 30s or 40s, impact insurability quite drastically.

Calculating the Right Coverage Amount

Determining adequate coverage isn’t simply a matter of choosing a round figure. It requires consideration of several factors: current annual expenses, outstanding liabilities, future financial goals, inflation, and the number of years your family would need support.

A helpful method to determine the cover is the income-replacement method. If you earn ₹10 lakhs per annum and want to provide for your family for 25 years, factoring in inflation at 6%, you’d need a cover of around ₹3-3.5 crores. To this, add any loans outstanding and specific goals, such as children’s education or marriage.

For those unsure about calculating the exact amount needed, a Term Insurance Calculator provides a scientific approach to determining appropriate coverage based on individual circumstances. These tools factor in inflation, current expenses, liabilities, and future goals to suggest optimal coverage amounts.

Features That Actually Matter

When purchasing term insurance, it’s easy to get distracted by flashy add-ons or low premiums. What truly matters are features that offer real value:

• Return of Premium (ROP) Plans: These may seem appealing because they refund premiums at maturity, but they often cost 3–4 times as much as regular term plans. For most individuals, pure term insurance is far more cost-effective.

• Critical Illness Riders: These provide a lump sum payout if diagnosed with listed critical illnesses, helping manage medical costs and income loss during treatment. This is one rider worth considering.

• Accidental Death Benefit Rider: Provides extra coverage in the event of accidental death, but should not replace a robust base policy.

• Claim Settlement Ratio (CSR) & Solvency Ratio: These two metrics help evaluate an insurer’s reliability. A CSR above 95% and a solvency ratio above 1.5 indicate financial strength and smooth claim processing.

How the Claim Settlement Ratio Is Calculated

The Claim Settlement Ratio (CSR) measures the percentage of claims an insurer has paid during a specific period. It includes:

• Claims received during the year

• Claims pending from previous years

It excludes:

• Unclaimed cases (where required documentation wasn’t completed)

• Claims still under process at year-end

This approach ensures that CSR reflects only actionable claims.

CSR Formula

CSR = Claims Paid ÷ (Claims Outstanding at Beginning + Claims Intimated – Unclaimed – Claims Outstanding at End)

A CSR of 97% or higher indicates strong dependability. Insurers with a CSR below 90% should generally be avoided.

Though CSR is important, it should not be the only parameter you rely on. It must be considered along with solvency ratio, claim experience, and the policy’s overall suitability.

Top 10 Life Insurers With the Highest CSR (2025)

Average CSR for 2022–2025 – IRDAI Public Disclosures

1. Axis Max Life – 99.62%

2. HDFC Life – 99.55%

3. Bajaj Allianz Life – 99.21%

4. Tata AIA Life – 98.21%

5. Aditya Birla Sun Life – 98.45%

6. Kotak Life – 98.54%

7. LIC of India – 98.35%

8. PNB MetLife – 99.29%

9. SBI Life – 98.24%

10. ICICI Prudential Life – 98.03%

Common Myths That Hold People Back

Several misconceptions prevent people from securing adequate coverage. The belief that employer-provided insurance is sufficient is hazardous. Group insurance typically offers limited coverage (often just 3-5 times annual salary) and isn’t portable when you change jobs.

Another myth is that term insurance is only for the primary breadwinner. In dual-income households, both partners should have coverage proportional to their income. Even though homemakers contribute significantly to household management, replacing these services would cost substantial amounts.

Some believe they can’t afford term insurance, but the reality is quite the opposite. Given its pure protection nature, term insurance is the most affordable insurance product available. Comparing premiums across insurers and choosing the Best Term Insurance Plan based on your needs rather than just cost can ensure you get optimal coverage without straining your budget.

The Right Time to Buy Is Now

Financial security isn’t about having contingency plans for every possible scenario; it’s about having the proper protection when it matters most. Term insurance provides that foundation. It’s not a product you buy when you can afford it; it’s what you secure first so you can afford everything else.

The reality is stark: families without adequate insurance face financial devastation during already emotionally challenging times. Children drop out of good schools, homes get mortgaged or sold, and life savings get depleted to cover expenses that insurance could have covered.

The process of purchasing term insurance today is straightforward; most can be done online with minimal documentation. Medical tests are often done at your doorstep, and policy issuance happens within days. The administrative barriers that once existed have largely disappeared.

Making the Decision

Ultimately, term insurance is about responsibility toward your family, your commitments, and the life you’ve built together. It’s not a morbid consideration but a practical acknowledgment that protection precedes prosperity.

In 2025, as we navigate uncertain economic times and rising living costs, ensuring your family’s financial security shouldn’t be optional. It should be the foundation upon which all other financial decisions rest. Because the accurate measure of financial planning isn’t just how much wealth you accumulate; it’s ensuring that wealth serves its purpose, regardless of what life brings.

The question isn’t whether you can afford term insurance. It’s whether your family can afford for you not to have it.

Data sources: This article uses market research and consumer behavior data compiled by Ditto Insurance, an online insurance advisory platform, as well as publicly available industry statistics from the Insurance Regulatory and Development Authority of India (IRDAI).