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How to Buy Life Insurance for Yourself and Your Family: Term Plans, Endowment Plans, and Everything in Between

Life insurance is one of those topics that sounds boring until you actually need it. The truth is, almost no one wakes up in their twenties excited to buy a policy. But life insurance is not really for you. It is for the people who depend on your income. If something happens to you, your family should not have to worry about money while they are dealing with grief. That is the entire job of life insurance.

In this article, I want to walk you through the basics in plain language. We will cover what life insurance actually is, why it matters, the difference between term plans and maturity benefit plans, which add-ons you should consider, how to pick an insurer, and how you can buy a policy online without losing your mind. I will also share some practical examples and a quick walkthrough of how the process looks on a site like Policybazaar.

Why Life Insurance Matters More Than You Think

At its core, insurance works on a simple formula. If X happens, you get financial protection. In the case of life insurance, X is death. That sounds morbid, but it is the truth. You buy life insurance so that if you are no longer around, the people who rely on you have a financial cushion. It replaces the income that disappears when you die.

Think about it this way. If you earn a salary, your family likely uses that salary for rent, food, school fees, loans, and future goals. The moment that salary stops, everything becomes harder. Life insurance pays a lump sum to your nominee, which could be your spouse, your parents, or anyone you choose. That lump sum becomes the replacement income your family uses to keep their life running.

This is why life insurance is not an investment. It is a risk management tool. You are paying a small amount so that a much larger amount is available if the worst happens. It is one of the few financial products where the best outcome is that you never personally see the benefit, because you are alive and well.

What Exactly Is Life Insurance?

Life insurance is a contract between you and an insurance company. You pay a premium every year, or every month, for a certain number of years. That period is called the policy term. In return, if you die during that term, the company pays a pre-decided sum to your nominee. If you survive the term, what happens next depends on the type of plan you bought.

There are two broad categories of life insurance plans in India. The first is a pure term plan, where you pay premiums for the coverage period and get nothing back if you survive. The second is a maturity benefit plan, also called an endowment plan, where you get some money back at the end of the term, either as a lump sum, periodic income, or return of premiums paid.

Understanding this difference is the single most important thing before you buy a policy. Most people get confused here, because one plan looks like a waste of money and the other looks like an investment. Let me explain both clearly.

The Right Time and Duration to Buy

Many people ask me when they should buy life insurance. My answer is simple - buy it as early as possible, ideally in your twenties. The best time is between 25 and 35 years of age. At that age, you get the best combination of a high cover amount and a low premium.

If you start at 25 and plan to retire at 65, you can buy a 40-year term plan. That means for 40 years, you pay a fixed premium every year. If something happens to you during that period, your family gets the cover amount. If you live past 65, the term ends. That is a simple, clean way to structure it.

The reason age matters so much is that the older you get, the more likely you are to die, and the higher your premium becomes. A 25-year-old buying a one crore rupee cover will pay a fraction of what a 45-year-old pays for the same cover. So the math strongly favours starting early.

Term Insurance: The Misunderstood Powerhouse

Let us talk about term insurance first, because I believe it is the most powerful and most misunderstood life insurance product in the market.

Here is how a term plan works. You buy a cover of, say, one crore rupees. You pay a premium every year for 40 years. If nothing happens to you and you live past 65, you get nothing back. Not a single rupee. All the premiums you paid are gone.

On the surface, that sounds like a terrible deal. Why would anyone pay money for 40 years and get nothing back? That is exactly why many people think term insurance is a waste. But the logic flips completely when you understand the core purpose of life insurance.

Because the insurance company does not have to return your premiums or generate any investment return, the premium for a term plan is incredibly low. You get a very large cover for a very small annual payment. For example, a healthy 26-year-old can get a one crore rupee cover for roughly Rs 6,000 to Rs 14,000 per year, depending on the insurer and add-ons. Compare that with an endowment plan where the same cover might cost Rs 20,000 to Rs 25,000 or more every year.

This low-cost structure has three major benefits.

- Fixed premium for the entire duration. Your premium stays the same for the whole 40-year term. Inflation reduces the real value of money every year. So the Rs 10,000 you pay today feels heavy, but 20 or 30 years later, that same Rs 10,000 will feel very light because of inflation. Meanwhile, your family still gets the full one crore cover.

- Higher cover at a low cost. My recommendation is that your life cover should be at least 10 times your annual income. Ideally, it should be 20 to 25 times your annual income. So if you earn Rs 5 lakh per year, your minimum cover should be Rs 50 lakh. Ideally, you should take a cover of one crore rupees. A term plan makes this affordable.

- Tax benefit under Section 80C. The premium you pay for a term plan qualifies for deduction under Section 80C of the Income Tax Act. This reduces your taxable income and, in turn, the tax you pay. I have covered Section 80C in a separate video, but just remember that the premium you pay is not a dead expense. It also helps you save tax.

Maturity Benefit or Endowment Plans: The Cost of Comfort

Now let us talk about maturity benefit plans, also called endowment plans or money-back plans. These plans promise that at the end of the term, you will get something back. It could be your total premiums, a lump sum, or a regular income for a few years.

That sounds nice, but there is a hidden cost. When a policy promises a return, the insurance company has to invest your premiums and generate that return. That means the policy is no longer pure insurance. It becomes a mix of insurance and investment. And that mix is usually not in your favour.

Because the insurer has to generate a return and also cover its own costs, the premium for the same life cover shoots up. A one crore cover that costs Rs 6,000 a year as a term plan can easily cost Rs 20,000 to Rs 25,000 a year as an endowment plan. That is three to four times more. In many cases, the extra money you pay is better off being invested directly in a low-cost index fund or a diversified portfolio.

I am not saying endowment plans are always bad. For some people, the forced discipline of paying a higher premium and the comfort of getting money back is valuable. But for most people who are willing to keep their insurance and investments separate, a term plan plus direct investing is a far more efficient strategy.

The biggest disadvantage of any maturity benefit plan is that you pay a much bigger premium for the same cover. If your goal is to protect your family, then pure term insurance does that job at the lowest cost. If your goal is to invest, then there are better avenues outside insurance. Mixing the two usually gives you mediocre insurance and mediocre returns.

Critical Add-Ons You Should Not Skip

When you buy a term plan, the insurance company will offer you several optional add-ons. These are called riders, and they extend the coverage beyond just death. I consider four of them practically mandatory for most people.

- Critical illness benefit. If you are diagnosed with a serious illness like cancer, heart attack, kidney failure, or stroke during the policy term, this rider pays out a lump sum. That money helps you cover treatment costs and replace lost income while you recover. You can choose the amount separately, for example Rs 10 lakh or Rs 30 lakh, independent of your main cover.

- Accidental death benefit. If you die due to an accident, your nominee gets an additional amount over and above the base cover. So if your base cover is one crore and you have a Rs 25 lakh accidental death rider, your nominee gets one crore plus twenty-five lakh.

- Accidental disability benefit. If an accident leaves you permanently disabled and you cannot work, this rider pays an additional amount. Your income stops, but your expenses do not. This rider fills that gap.

- Premium waiver on critical illness or disability. If you contract a critical illness or become disabled and cannot pay your premiums anymore, this rider waives off future premiums, but your policy continues. That is extremely valuable because the last thing you want during a crisis is to lose your life cover because you could not pay the premium.

Taking these add-ons increases your premium slightly, but the protection they provide is enormous. I strongly suggest you consider all four, especially if you have financial dependents.

Choosing the Right Insurer: Claim Settlement Ratio and Brand Strength

When you buy life insurance, you are entering a relationship that will last decades. You want the company to still be around when your family needs to claim. So brand reputation matters a lot.

One of the best metrics to judge an insurer is the claim settlement ratio. This is the percentage of claims that the company has actually paid out. For example, if 100 claims come in and a company pays 99 of them, its claim settlement ratio is 99 percent. The higher the number, the better.

Look for a company with a high claim settlement ratio, ideally above 98 or 99 percent. This tells you that if your family files a claim, there is a very high chance it will be settled without unnecessary hassle.

You should also look at the solvency ratio, which tells you how financially strong the company is. A higher solvency ratio means the company has enough capital to pay claims even in difficult times. Reputed brands like Max Life, HDFC Life, ICICI Prudential, and Tata AIA often show up in such comparisons, but you should always check the latest numbers yourself.

Disclose Everything, Always

This is something many people ignore, and it can ruin a claim later. When you buy a life insurance policy, the insurer will ask you several personal questions. Do you smoke? Do you chew tobacco? Do you have any existing illness? What is your income? What is your education level? Be completely honest.

If you hide something, like a smoking habit or a pre-existing condition, the insurer may find out later. If your family files a claim and the insurer discovers that you did not disclose something material, the claim can be rejected. That is the last thing you want your family to deal with.

No matter how small or embarrassing the detail is, disclose it. Clean and transparent disclosure makes the claim process smooth for your nominee. That is the entire point of buying life insurance in the first place.

Why Your Age Is the Biggest Lever

I have already touched on this, but it deserves its own section. The younger you are, the cheaper life insurance is. It is that simple.

If you are in your twenties, your annual income might not be very high yet. You may feel like you cannot afford a big cover. But the truth is, this is the best time to lock in a low premium for a long term. If you wait until your forties, the same cover can cost three to five times more. And if you develop a health condition later, you may even find it hard to get insurance at all.

So my recommendation is to buy life insurance between the ages of 25 and 35. Take a large cover, choose a long term till retirement, and add the key riders. Then revisit your policy every few years. As your income grows, you can add another policy or increase your cover if needed.

How to Buy on Policybazaar: A Step-by-Step Walkthrough

Now let me show you how the actual buying process works on a comparison platform like Policybazaar. The steps are simple, and you can complete the entire process online.

First, go to the term insurance section on Policybazaar. You will see a headline that says something like "One crore life cover as low as Rs 490 per month." That is roughly Rs 6,000 a year, which is a fair ballpark for a young healthy person.

Enter your details. For example, let us say you are a 26-year-old male named Shah Rukh born in January 1995, earning between Rs 5 lakh and Rs 7 lakh per year, a college graduate, non-smoker. When you proceed, the platform asks you a few questions about your tobacco use, income, occupation, and education. Answer these honestly.

Next, choose your life cover amount. One crore is a good starting point for many young earners. Then choose the policy term. If you are 26 and want coverage till age 65, that is a 39-year term.

You will then see a list of plans from different insurers. The platform shows the annual premium for each. For example, a pure term plan from ICICI Prudential might cost around Rs 14,000 per year. A Max Life plan with certain riders might cost around Rs 9,800 per year. A Tata AIA plan with similar features might be around Rs 19,000. These are just examples, and actual numbers vary based on your profile and add-ons.

Sort the results by claim settlement ratio. This helps you see which insurer has the best claim record. Max Life, for instance, may show a claim settlement ratio of 99.4 percent, while Tata AIA might show 99.1 percent. Both are good, but the difference can matter.

Now comes the important part - add-ons. The platform will show you riders like critical illness benefit, accidental death benefit, accidental disability benefit, and premium waiver. Choose the ones you need. For critical illness, you can set an amount like Rs 30 lakh. For accidental death and disability, you can add Rs 10 lakh or more. Each rider increases your premium, but as I said, the protection is worth it.

Once you finalise the plan and riders, the platform gives you a clear summary of the premium, the cover amount, the term, the nominee details, and the total benefits. From there, you can proceed to apply. The insurer will likely ask for identification documents, income proof, and possibly a medical examination depending on your age and cover amount. Complete the process and pay the first premium.

One important note: do not fall for the temptation of a return of premium plan. On the Policybazaar page, you may see an option that says "Return of Premium." That means if you survive the term, you get your premiums back. But the premium for that plan is often much higher. A plan that costs Rs 9,000 as a pure term policy might cost Rs 14,000 as a return of premium plan. Over 40 years, that extra money could be invested elsewhere for better returns. Keep insurance and investment separate.

A Note on Health Insurance for Parents

While we are on the subject of protecting your family, let me add one practical tip. If your parents are senior citizens and do not have their own health insurance, buy a separate health insurance plan for them. Their medical needs are different from yours, and their age means they are more likely to need hospitalisation. A dedicated senior citizen health policy is often better than trying to add them to your own plan. Many insurers offer specific plans for older adults, and it is worth exploring those before you focus only on life insurance.

Conclusion

Let me summarise the key takeaways in simple bullet points.

- Life insurance is a risk management tool, not an investment. Its job is to replace your income for your family if you die.

- Buy term insurance if you want maximum cover at minimum cost. Do not expect any money back if you survive. That is a feature, not a bug.

- Take a cover of at least 10 times your annual income, ideally 20 to 25 times. For a Rs 5 lakh salary, aim for a cover between Rs 50 lakh and Rs 1 crore.

- Buy early, ideally between ages 25 and 35. The premium is low and fixed for the entire term.

- Add key riders - critical illness, accidental death, accidental disability, and premium waiver. They protect you when life throws something other than death at you.

- Check the insurer's claim settlement ratio and solvency ratio. A high claim settlement ratio means your family is more likely to actually get the money.

- Disclose everything honestly. Smoking, existing illnesses, lifestyle habits - hiding them can lead to claim rejection later.

- Do not mix insurance and investment. Endowment and return of premium plans cost more and give mediocre returns compared to term insurance plus direct investing.

- Use an online comparison platform like Policybazaar to see plans, compare premiums, sort by claim ratio, and buy. But always do your own research before finalising.

- Do not forget health insurance for senior parents. It is a separate need and deserves its own policy.

Citations and References

1. Insurance Regulatory and Development Authority of India (IRDAI). Annual Report on Life Insurance Claim Settlement Ratios and Solvency Margins. 2023-24. Available on IRDAI official website.
2. Income Tax Act, 1961. Section 80C: Deductions in respect of life insurance premiums, provident fund contributions, and certain investments. Government of India.
3. Policybazaar.com. Term Insurance Calculator and Policy Comparison Tool. Accessed 2025. Information on premiums, riders, and claim settlement ratios for various life insurers.
4. Personal finance industry guidance on life cover multiples. Common recommendations from certified financial planners suggest a life cover of 10 to 25 times annual income depending on age, dependents, and liabilities.