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As part of a year-end financial review, insurance experts urge people to look beyond portfolio returns and re-examine a critical pillar of financial security—term insurance. While investments are typically reviewed annually, risk cover is often left untouched for long periods, even as incomes, liabilities, goals and family responsibilities change considerably.
Is your cover still adequate?
The primary role of term insurance is income replacement. The cover should be sufficient to help dependants maintain a similar lifestyle in the event of the earning member’s untimely death. “A commonly used starting point is a sum assured of at least 10–15 times current annual income, which can replace lost income for a meaningful period,” says Jude Gomes, managing director and chief executive officer, Ageas Federal Life Insurance.
Adequacy assessment should factor in household expenses. Living expenses for dependants must be projected for the number of years they will rely on that income and discounted to present value.
Term insurance should also act as a debt-clearing tool. “Ensure the cover is sufficient to wipe out all active liabilities—such as home or vehicle loans—so your dependants do not inherit a financial burden that eats into their savings,” says Nitin Mehta, chief distribution officer, Bharti AXA Life Insurance.
Future financial goals such as children’s higher education or marriage require explicit provisioning. The policy should carry a sufficient buffer to fund these milestones independent of routine household expenses.
From the sum assured arrived at in this manner, deduct existing savings, investments and employer-provided insurance to avoid overestimation.
A corpus that appears adequate today may fall short a decade later. “Factor in inflation by assuming a long-term rate of 5–6 per cent,” says Gomes.
When should you enhance cover?
Increases in term cover should be strategically linked to life stages and expanding responsibilities. Marriage is a primary trigger. “Even when both spouses earn, shared responsibilities rise, warranting a higher insurance cover to protect their future lifestyle,” says Mehta.
The birth of a child introduces multi-decade financial commitments—education, marriage and other goals—often necessitating a substantial enhancement in the sum assured.
Acquiring major liabilities, especially a home loan, is another critical trigger. Insurance cover should align with the loan quantum—either through a separate policy or a top-up—so that claim proceeds can settle the debt without eroding the corpus meant for the family’s daily sustenance.
“Protection needs also rise when parents or other family members become financially dependent,” says Gomes.
A substantial rise in income is another signal. The income that must be replaced to maintain the family’s standard of living increases, calling for a proportionate hike in coverage.
When should you reduce cover?
Reducing term insurance coverage warrants extreme caution and is generally advisable only when a policyholder has achieved a state of true financial zero-dependency. This implies that all major liabilities have been fully paid off, children are financially independent, and sufficient retirement corpus, savings and investments exist to sustain the spouse’s lifestyle for the remaining years.
“Even then, rising inflation reduces purchasing power,” says Vikas Gupta, chief product officer, ICICI Prudential Life Insurance. Healthcare expenses can escalate sharply with age. Before scaling down, policyholders must evaluate longevity risk and unforeseen medical inflation. A late-life health crisis can significantly drain retirement savings. Removing the insurance safety net prematurely can leave the surviving spouse financially vulnerable. “Moreover, increasing cover later in life can be more expensive,” says Gupta.
In practice, many term policies do not permit reducing the sum assured mid-term. “Individuals holding multiple policies can choose to discontinue some in the future to lower overall coverage,” says Varun Agarwal, business head – term insurance, Policybazaar.com.
What qualitative checks should you make annually?
An annual review should go beyond the sum assured. Start with the payout mechanism. Determine whether the policy pays a one-time lump sum or provides monthly income replacement. “Ensure this structure aligns with the nominee’s financial maturity and ability to manage large sums,” says Mehta.
Nominee details must be accurate and current to avoid disputes and delays at claim time. “Policyholders should also assess the insurer’s claim settlement record, as a strong track record signals reliability,” says Agarwal.
Flexibility in premium payment—annual, half-yearly, quarterly or monthly—helps manage cash flows. Keep track of premium due dates and understand grace period clauses to prevent lapses due to missed payments.
Clear policy wording and simple documentation requirements reduce friction at the time of a claim. Service quality matters as well. Digital access, responsive support and clear communication ensure the policy remains dependable over its term.
Is the policy tenure right?
The policy tenure should outlast financial responsibilities—not merely earning years or a traditional retirement age. Many professionals aim for early retirement, making a blanket link to age 60 outdated.
Even if retirement is planned early, children may complete their education and become self-reliant much later. The policy must bridge this gap. It should also continue until a spouse or ageing parents no longer rely on the policyholder’s income for everyday needs.
The right duration is the point at which the individual becomes effectively self-insured—when assets can cover family needs and liabilities without external protection. Choosing a shorter tenure simply to save premiums can expose the family at a vulnerable stage.
Do you have all the essential riders?
Riders should be selected based on lifestyle and risk profile. A waiver of premium rider ensures that future premiums are waived if permanent disability prevents the policyholder from working.
Critical illness riders are relevant for those with a family history of lifestyle diseases. They pay a fixed lump sum on diagnosis and are designed to cover income loss.
Accidental death benefit riders are particularly relevant for frequent travellers, field-force professionals and individuals with active lifestyles. This rider pays an additional benefit to the nominee if the policyholder dies due to an accident.
An accidental total or permanent disability rider provides a lump sum or regular income if an accident results in disability and is crucial for professionals dependent on physical skills.
Riders are typically chosen at policy inception. While some policies allow additions at significant anniversaries, this is uncommon and often subject to strict medical underwriting and age limits.
Which clauses and processes must you understand?
Policyholders should read conditions and exclusions carefully to avoid surprises. Most life policies include a suicide clause with a waiting period of one year from inception or revival. “If the policyholder dies by suicide within the waiting period, the beneficiary is entitled to receive 80 per cent of total premiums paid or fund value in the case of Ulips,” says Anup Seth, chief distribution officer, Edelweiss Life Insurance. After the waiting period, such claims are treated like any other, provided the policy is active and premiums are up to date.
Non-disclosure is the most critical risk. Every medical detail—pre-existing conditions, past surgeries, smoking or alcohol habits and occupational hazards—must be accurately recorded. Inaccuracies can jeopardise claims.
Equally important is preparing the family for the claim process. Nominees should know where policy documents or digital access details are stored. “Standard claim documentation typically includes the death certificate, medical records and cause-of-death documents, hospital discharge summary, police FIR or post-mortem reports for accidental or unnatural deaths, and the nominee’s identity and bank details,” says Agarwal.
Regularly review the nominee field. Policies often carry outdated details—such as a deceased parent—creating legal hurdles for a surviving spouse. “Ensure the nominee’s name matches KYC documents exactly. Even minor spelling, initials or date-of-birth mismatches can delay settlement,” says Seth.
Finally, keep mobile numbers and email IDs updated so premium reminders and policy communications are not missed.
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