Term insurance

What is term insurance?

Term insurance is a life insurance policy that covers only the risk of death for a fixed period, called the policy term. If the life assured dies during the term, the insurer pays the agreed sum assured to the nominee. If the life assured survives to the end of the term, the cover simply ends and, in a plain term plan, nothing is paid back. Because there is no savings element, term insurance buys the most cover for each rupee of premium.

IRDAI's product rules call this a pure risk product: a policy with no savings element where the agreed amount is paid on death, or on a covered health event, within the policy term.

How term insurance works in India

Term plans are filed and approved under the IRDAI (Insurance Products) Regulations, 2024 and the Master Circular on Life Insurance Products issued on 12 June 2024. As of October 2026, the main rules that shape a term policy are these:

• Policy term. Insurers may offer individual pure risk products with terms as short as one month, though most retail term plans run for 10 to 40 years or up to a chosen age.
• Premium options. The premium can be single, regular (paid for the whole term) or limited (paid for fewer years than the term). See premium paying term.
• No guaranteed surrender value. The guaranteed surrender value rules apply to savings products, not pure risk products. For limited pay and single pay term plans, the master circular asks that any non-forfeiture benefit be "reasonable and fair".
• Grace period and revival. The grace period is 15 days for monthly premiums and 30 days for other modes, with cover continuing during it. A lapsed non-linked policy can be revived within five years of the first unpaid premium, subject to underwriting. See policy revival.
• Suicide clause. If death is by suicide within 12 months of the start of risk or of revival, the nominee gets at least 80% of premiums paid or the surrender value, whichever is higher, provided the policy is in force.
• Contestability. Under Section 45 of the Insurance Act, a policy cannot be questioned on any ground after three years from issue, start of risk, revival or rider attachment, whichever is later.
• Free look. The buyer has 30 days from receiving the policy document to cancel it. See free look period.

IRDAI also requires every life insurer to offer Saral Jeevan Bima, a standard term plan introduced from 1 January 2021 for people aged 18 to 65, with cover from ₹5 lakh to ₹25 lakh and a 45-day waiting period during which only accidental death is covered.

Common term insurance variants

Tax and GST

From 22 September 2025, premiums on individual life insurance policies, including term plans, are exempt from GST (they earlier carried 18%). Group term policies remain taxable. On income tax, term premiums have long qualified for the old-regime deduction once found in section 80C, and the death benefit paid to a nominee is exempt. The Income-tax Act, 2025, in force from 1 April 2026, restates these rules under new section numbers; see Section 80C and life insurance.

What term insurance means for distribution

Term insurance is the product the regulator, insurers and policymakers most want sold, and it is also one of the harder products to close well.

• Ticket size and pay-out. Term premiums are low relative to cover, so commission per sale in rupees is small even when it is high as a percentage. Many agents therefore sell savings plans first. Insurers that want protection growth usually add separate incentives, simpler journeys and lead support for term.
• Underwriting drop-off. Medical tests, income proof and tele-underwriting add days and lose customers between proposal and issuance. Tracking the share of proposals issued, and the reasons for decline or postponement, is a basic term sales metric. See underwriting.
• Disclosure discipline. A common reason for repudiating early term claims is non-disclosure of health history, habits or existing cover. An agent or partner who fills the proposal form for the customer, or rushes the health questions, creates claim risk for the family later. Section 45 protects policies only after three years.
• Right-sizing cover. A good adviser works out cover from income, loans and dependants rather than picking a round number. Underinsurance is common in India; a ₹25 lakh plan bought at 30 rarely replaces a working life of income.
• TROP versus pure term. Customers often prefer getting "money back", so TROP sells easily. The adviser should show the premium gap and what the difference would earn elsewhere, so the choice is informed.
• Riders. Accidental death, critical illness and waiver of premium riders are common attachments. Under the 2024 master circular, health and critical illness rider premiums cannot exceed 100% of the base premium, all other riders together cannot exceed 30%, and accidental death rider cover can go up to three times the base sum assured.
• Persistency. Term policies lapse quietly, often in the second year when the auto-debit fails or the card expires. Lapsed term cover means a family with no protection and an insurer with a lost book.
• Pricing after the GST exemption. With GST removed from individual premiums, insurers can no longer claim input tax credit on related costs, including distributor commission, which can feed into pricing. Partners should quote current rates from the insurer rather than older brochures.
• Commission rules may change. IRDAI's September 2026 consultation paper on distribution economics proposes product-level commission caps again, with higher caps for regular premium pure term plans than for most savings plans. As of October 2026 this is a proposal open for comments, not a rule.