You Are Probably Less Covered Than You Think

There’s a particular kind of confidence people have about their life cover. Ask whether they’re insured and you’ll get a quick yes — there’s the policy from the office, maybe something an uncle sold them years ago, and a nagging sense that it’s all handled.

Then you ask how much the payout would actually be, and the answer gets vague.

This is where most families are exposed. Not because they refused to buy life insurance, but because what they bought was never sized against what their household would need.

The employer policy problem

Group cover from your workplace is a genuine benefit. It’s also the single most over-relied-on piece of protection in most people’s financial lives, for three reasons.

It’s small. Typical group life cover runs to two or three times annual salary. For a family with a home loan and school fees, that clears part of the debt and very little else.

It ends when the job does. Resign, get laid off, take a sabbatical, retire — the cover stops that day. The period right after a job loss is precisely when a family is most financially fragile, and it’s the period you’re least likely to be insured.

And it’s not yours to keep. The employer negotiates it, renews it, and can change or drop it. You have no say and often no notice.

Group cover is a useful supplement. It is not a foundation.

The policy someone sold you in 2016

The other common source of false comfort is a savings-linked plan — an endowment, money-back or unit-linked policy bought years ago, often from a relative or a bank relationship manager.

There’s nothing inherently wrong with these products. The problem is what they cost in cover. A large share of your term insurance premium goes towards the savings or investment component, which means the life cover attached is usually a fraction of what the same money would buy in pure protection. People paying ₹40,000 a year are frequently insured for ₹8 or ₹10 lakh.

If you own one of these, don’t panic and don’t necessarily surrender it — exit costs can be steep, especially early on. Just stop counting it as your life cover. Look up the sum assured on the policy document and treat it as one small line in a much bigger calculation.

The number you actually need

Work it out properly rather than reaching for a multiple of salary.

Start with annual household spending — what the family actually spends, not what you earn. Multiply by the number of years they’d need support: until the youngest child is independent, or until your spouse’s own income can carry the house.

Add every outstanding loan at current balance. Add lump sums you’d otherwise have funded from future income — higher education, a wedding.

Then subtract what already exists: savings, mutual funds, EPF, PPF, property that could be sold, and yes, the group cover and the old endowment policy.

What remains is your gap. Most people run the numbers for the first time and find it’s considerably larger than anything they hold.

When to close it

The honest trigger isn’t an age. It’s the moment someone would struggle financially if your income stopped — a spouse who isn’t earning, a child, dependent parents, or a loan with your name on it.

If that’s already true, the case to buy term insurance is straightforward, and waiting mostly costs you money. Premiums rise with age and are locked in at the rate you start with, so a year of delay is a permanently higher price for the same protection. Health matters too — conditions that emerge in your late thirties can mean a loaded premium or a harder underwriting process.

If nobody depends on your income and you carry no debt, there’s a reasonable argument for waiting. Just don’t drift past the point where the answer changes.

Before you commit

Disclose everything. Tobacco, alcohol, every diagnosis and medication, family medical history. Insurers routinely issue policies with loaded premiums for declared conditions. What they contest at claim stage is what you left out.

Read the exclusions. Know the suicide clause period and exactly what any accidental death rider does and doesn’t cover.

Check the lapse terms. Grace period, revival window, what happens if a payment fails. More policies die of administrative accidents than of unaffordability.

Look past the premium. Claim settlement ratio matters, but so does how quickly claims are actually paid.

Two minutes of admin

Once the policy is issued, confirm the nominee details are correct and update them after any major life change — marriage, divorce, a child.

Then tell your family the policy exists and where the paperwork is. It sounds trivial. Unclaimed policies are a real and large category, and almost all of them belong to people who assumed someone would find out.

Cover nobody knows about protects nobody at all.