The Misconception of Term Life Insurance as a Tax-Saving Tool
In India, term life insurance is often misunderstood as merely a tax-saving instrument due to the benefits provided under Sections 80C and 10(10D) of the Income Tax Act. While the tax deductions — up to ₹1.5 lakh on premiums — and tax-free benefits are attractive, they should not overshadow the primary purpose of term insurance: long-term financial protection for families.
The Skewed Focus on Investment-Led Instruments
For too long, financial planning in India has been biased towards investment-oriented products. Life insurance is typically bundled with savings-oriented plans like ULIPs and endowment policies, promoting wealth creation rather than risk protection. This mindset has pushed term insurance — the most cost-effective form of life coverage — to the sidelines.
As a result, many Indian households remain financially vulnerable. For families dependent on a single income, the sudden loss of a breadwinner can lead to severe financial distress. Routine expenses such as EMIs, school fees, medical bills, and daily essentials can quickly become overwhelming.
The Financial Reality of Indian Households
To put this into perspective, the Economic Survey 2023-24 estimates India’s per capita income at ₹2.12 lakh per annum. Consider a middle-income household:
- Home Loan EMIs and rent can range between ₹3,00,000 to ₹7,00,000 per year in metropolitan cities.
- Children’s education costs can vary from ₹50,000 to ₹3,00,000 annually per child.
- Daily living expenses for a family of four can amount to up to ₹12,00,000 annually.
- Healthcare costs can add another ₹60,000 annually.
Without a financial safety net like term insurance, such households are one crisis away from losing their financial stability.
The Issue of Underinsurance
A significant concern is not just low insurance coverage but also underinsurance. According to the National Insurance Academy, India’s insurance protection gap stands at a staggering 90%. Many individuals opt for low cover amounts to keep premiums minimal, inadvertently defeating the purpose of life insurance.
Ideally, one should choose a sum assured that is 10 to 15 times their annual income, considering existing liabilities. For instance, someone earning ₹10 lakh annually should have a term cover of at least ₹1–1.5 crore.
Digital Insurance: A Step Towards Change
The rise of digital insurance platforms has made term plans more accessible, transparent, and affordable. At PhonePe, technology is being used to reshape how India approaches term life cover through:
- Pre-approved offers that reduce issuance time.
- Zero-cost assurance with no hidden fees.
- Up to 15% discount on plans.
- Flexible premium options.
- Dedicated Relationship Managers for assistance.
PhonePe is committed to building trust through unbiased advisory and seamless digital journeys. The platform aggregates top-rated insurers, providing users with clear comparisons across brands and benefits.
Shifting the Narrative on Term Insurance
As India moves towards the IRDAI’s vision of ‘Insurance for All by 2047’, it’s time to shift the narrative. Term insurance is not just a checkbox for tax season; it’s a cornerstone of responsible financial planning. True financial security doesn’t come from returns; it comes from reassurance.
