Why Term Insurance Is Important Even If You Have a Strong Investment Portfolio

If you already invest seriously, you may reasonably ask why you need life insurance at all. It is a fair question, and the answer is not that term insurance is a better investment. It is not an investment. Aditya Birla Sun Life Insurance (ABSLI), registered with the Insurance Regulatory and Development Authority of India (IRDAI) as a life insurer, settled 98.86% of individual death claims in FY 2025-26 as per IRDAI and insurer public disclosures (Form L-40). What that number represents is a promise to pay, in full, from the day a policy is issued. That is the thing a portfolio cannot do, and it is the whole argument.

What is term insurance? Term insurance is the simplest form of life insurance. You pay a premium for an agreed number of years, and if you die during that period, the insurer pays your nominee a fixed sum assured. On a standard level cover plan, if you outlive the policy term you receive nothing. That is not a flaw in the design, it is the reason the cover is so cheap: you are buying protection against a specific event, not accumulating a corpus. Because there is no savings component, term plans deliver a far larger payout per rupee of premium than any other life insurance product. That is the trade you are making. Why term insurance is important? Because an investment portfolio and a life insurance payout solve different problems, and only one of them is available immediately.

Your portfolio is a stock. It is the capital you have accumulated so far, and it grows gradually as you keep earning and keep investing. Your term plan is a promise. The full sum assured is payable from the first day the policy is in force, regardless of how long you have held it.

Consider a 32 year old earning Rs 18 lakh a year who has built a portfolio of Rs 25 lakh. That portfolio is a real achievement. But the remaining working life it was meant to be funded by is roughly 28 more years of income, which is where the actual value sits. If that income stops today, the portfolio covers a small fraction of what the family was counting on. A Rs 2 crore term plan bridges the difference on day one, for a premium that is a rounding error against the annual investment contribution.

Put plainly: your portfolio protects your future self. Term insurance protects your family from the version of the future where you are not there to keep building it.

Three things your portfolio specifically cannot do

• Pay out more than it holds. A portfolio is worth what is in it. A term plan pays the full sum assured even if you have paid one premium.
• Stay liquid at the worst moment. If the market is down when your family needs the money, they either sell at a loss or wait. A death benefit is a fixed rupee amount, unaffected by market levels.
• Stop your family liquidating your long-term compounding. This is the one people miss. Without cover, the family sells the equity holdings and the child's education fund to meet living expenses. The portfolio you spent a decade building gets dismantled in eighteen months. Term insurance is what lets those investments stay invested.

The honest caveat. If nobody depends on your income and you carry no loans, you do not need term insurance yet. The case begins the moment someone relies on your earnings or you take on a liability.

How much life insurance cover do you actually need?

The common convention is a sum assured of roughly 10 to 15 times your annual income, adjusted for outstanding loans, your dependants' ages and inflation. For a median urban salary in 2026, that lands most people at or above Rs 1 crore, which is why that figure has become the working adequacy benchmark.

A better approach than any thumb rule is to calculate your Human Life Value, which accounts for your income, expected working years, liabilities and existing assets. Use the ABSLI HLV Calculator for that, then price the cover on the ABSLI Term Insurance Calculator. Most people who do this discover they are underinsured rather than overinsured.

One adjustment worth making: subtract your existing employer group cover from the total only cautiously. Group cover typically runs at one to three times salary and it ends the day your employment does, so it is not a reliable substitute for individual cover.

Claim settlement ratios, FY 2025-26

Since the entire value of a term plan rests on the payout being made, the claim settlement ratio is the metric that matters most when you compare insurers.

Source: IRDAI and insurer public disclosures (Form L-40) for FY 2025-26. Read the ratio as a reliability signal rather than a ranking, since the spread at the top of the table is narrow and settlement outcomes also depend on complete, honest disclosure at the application stage.

What term insurance costs in 2026

Two things worth knowing before you compare quotes.

GST on individual life insurance premiums is now zero. As per the Ministry of Finance, the rate on all individual life and individual health insurance policies was reduced from 18% to nil with effect from 22 September 2025. Group term and group credit life were excluded and still attract 18%. For an individual buyer, that is a permanent reduction of roughly a sixth in what you pay. Any premium figure you see quoted "with tax" from before that date overstates the current cost.

Your premium is fixed at your entry age. Term pricing is based on your age and health when the policy is issued, and it does not rise as you get older. Waiting a year raises the rate permanently, and it gives your medical record a year in which to acquire something that triggers a loading or an exclusion.

PLACEHOLDER: insert one current, date-stamped premium illustration for a 30 year old non smoker male, Rs 1 crore sum assured, pulled from the ABSLI calculator. Quote as exclusive of GST, and name the plan and policy term. Please use the same figure on the two other articles listed in the review notes above.

You can compare cover levels on the ABSLI Rs 1 crore term insurance page.

Cover for your loans: where a loan insurance policy fits

If you carry a home loan, a car loan or a business loan, that debt outlives you. Your family inherits the repayment schedule.

There are two ways to handle it. Lenders often arrange a loan insurance policy in the form of group credit life, where the cover reduces in step with your outstanding balance and ends when the loan closes. It is tidy and it is usually cheap, but it is narrow: it protects the lender's exposure, it shrinks as you repay, and it typically does not follow you if you refinance or move lenders.

The alternative is to size your term cover to include the outstanding debt alongside income replacement. That gives your family a lump sum they can choose to use for the loan, and it does not reduce over time. For most people with a single large liability, the individual term plan is the better instrument and the credit life cover is a supplement rather than a substitute. ABSLI's credit life products sit under Group Credit Life solutions, arranged through lenders. Note that property insurance on the mortgaged asset itself is a general insurance product and separate from any life cover.

Riders worth pricing

Riders are optional add-ons selected at inception for an additional premium, and they cover risks a pure death benefit does not. With the ABSLI DigiShield Plan (UIN: 109N108V13), the available riders are:

• ABSLI Critical Illness Rider (UIN: 109B019V03)
• ABSLI Accidental Death and Disability Rider (UIN: 109B018V03)
• ABSLI Accidental Death Benefit Rider Plus (UIN: 109B023V02)
• ABSLI Waiver of Premium (UIN: 109B017V03)
• ABSLI Surgical Care Rider (UIN: 109B015V03)
• ABSLI Hospital Care Rider (UIN: 109B016V03)

For someone with a portfolio, the critical illness rider deserves particular thought. A serious diagnosis in your thirties or forties is statistically more likely than death, and it attacks from both sides at once: income stops while costs rise. That is precisely the scenario in which people liquidate long-term investments at the worst possible time. You can opt for either the Accidental Death and Disability Rider or the Accidental Death Benefit Rider Plus, not both. Riders are not available with the Joint Life Protection option or with Plan Options 3 and 5. Exclusions apply, please read the rider brochures.

Term insurance is not an investment, and that is the point

Worth stating plainly, because it is often blurred. A level cover term plan is an expense, in the same category as the premium on your home or health cover. You are transferring a risk you cannot afford to carry. You should not expect a return, and you should not compare its returns to an equity fund, because it has none. Some variants do return money. Return of Premium options give back the premiums paid if you survive the term, and ABSLI DigiShield Plan Option 10 works this way, while Option 9 pays a survival benefit as monthly income after age 60. These cost more than plain level cover for the same sum assured. That is a legitimate preference if you dislike the idea of paying for something that may never pay out, but it is a worse deal per rupee of protection. If you already have a functioning investment portfolio, plain level cover plus investing the difference is usually the more efficient combination. Where ABSLI fits

• ABSLI DigiShield Plan, the most configurable option, with ten plan options including level cover, increasing cover, monthly income payouts, joint life protection and Return of Premium
• ABSLI Super Term Plan, designed for salaried buyers
• The full ABSLI term insurance range, to compare options side by side

Key takeaways

• A portfolio is a stock of accumulated capital; a term plan pays its full value from day one
• The real asset you are insuring is your future income, not your current savings
• Cover is what stops your family liquidating your long-term investments to fund living expenses
• Target 10 to 15 times annual income, but run the HLV calculator for your own number
• GST on individual life premiums has been nil since 22 September 2025
• Compare claim settlement ratios, since the payout is the entire product
• Term insurance is an expense, not an investment, and pricing it as one is a category error

What is term plan?

Even before we start answering that question, we first need to get hold of the concept of a term insurance and what exactly does it offer. A Term plan is a good old insurance policy or a plain insurance plan whose sole motive is to provide you with sufficient life cover. Because the policy doesn'thave its focus on too many areas it does exceedingly well with what it offers. If you want to buy a term Insurance, you pay the premium amount for a certain number of years or term and the insurer would provide you with life cover for that duration. In the unfortunate event of the loss of life of the insured, the nominee would receive the sum assured amount as claim. However, if the insured sees this duration through, there are no financial gains whatsoever. One of the reasons behind its immense success is its ability to provide extremely high covers at very affordable premiums.

The Reasons of buying a term plan

There are more than a few reasons why you should go ahead and buy a Term Plan even if you have a proper investment plan outlined. The following are some of the prominent ones.

Taking Care of your loved ones

It is great that you are taking the onus on yourself to plan your investments. But what would happen to those investments and decisions if something unforeseen happens to you? More importantly who would take care of the financial needs of your family in your absence? A Term Plan would act as a friend that takes care of your family's financial concerns in your absence. It would ensure that your family is not stuck in some limbo, but able to continue with their lives. But to enable such capabilities it is important to choose your plan carefully and opt for a sum assured that would suffice the needs of your family and loved ones. One of the most commonly followed rules to calculate the sum assured is to multiply your annual income by 10 to 12 times minimum.

Easy on pockets as premium is low

For the life coverage that Term plans provide you with, the insurance premiums that they charge are pretty nominal in nature. In fact, term plans are more affordable when compared with most other insurance products. For a man whose age is 30 years, can opt for a term plan of 1 Crore by paying annual premium charges of just around Rs. 8-9,000 per annum. The premium fluctuates based on several factors such as the term of the policy, addition of riders, smoking and drinking status of the individual etc. But as you can see from the example, they are pretty easy on the pockets.

Benefit from Riders¹

Riders or Add-ons are extra features that you can add to your basic Term Plan to enhance its coverage without having to buy a new insurance or shell out a lot of money. Depending on your needs for riders, you can choose from accidental death benefit, disability, critical illness, waiver of premiums under certain conditions. These will help you push the limits of your Term Insurance and ensure that you get much more value for your money.

While building a healthy investment portfolio is good for meeting your long term financial goals and protecting the financial future of your family, but what happens if something happens to you if you are the sole bread earner of your family. This is when term plan comes into picture. While you are working and alive you can focus on building a healthy investment portfolio but at the same time you should keep yourself sufficiently covered with adequate life insurance too so that in your absence your family's financial future is not in danger. As a sole bread earner, you may have lots of financial commitments thus getting a right Term Plan is one of the smartest decisions that you can take.