Most people in India don’t buy life insurance. It gets sold to them.

A relative needs to meet a target. A bank relationship manager mentions a “guaranteed” plan. A colleague says his policy “also gives returns”. And before you know it, you are paying a premium every year for something you never actually planned.

Here’s the uncomfortable part. Many of those families are paying a lot and still remain under-insured.

This guide is for anyone who wants to do it the other way round: plan first, buy second. Whether you are buying life insurance for yourself for the first time or reviewing policies you already hold, these nine practical tips will help you get it right.

Insurance is the only purchase where the best possible outcome is that you never use it.

What’s Inside:

1. Why life insurance planning matters more than the policy you pick
2. Tip 1: Start with who depends on you
3. Tip 2: Calculate the right cover, not a round number
4. Tip 3: Buy insurance for protection, not for returns
5. Tip 4: Understand the problems with ULIPs before you sign
6. Tip 5: Pension plans: the tax surprise most buyers miss
7. Tip 6: Choose the right policy term and buy early
8. Tip 7: Disclose everything and check claim settlement
9. Tip 8: Add riders only where there is a real gap
10. Tip 9: Set up nominations, tell your family and review
11. A quick life insurance planning checklist
12. Frequently Asked Questions

Why Life Insurance Planning Matters More Than the Policy You Pick

Think of life insurance like the spare tyre in your car. Nobody buys a spare tyre to win a race. You buy it so that one bad day on the highway doesn’t leave your family stranded.

That is the only job life insurance has to do: replace your income if you are not around, so your family’s goals still happen. Your child’s education, the home loan, your spouse’s day-to-day life.

When a policy is bought to do three jobs at once (protect, invest and save tax), it usually does none of them well. That’s why the right life insurance planning approach starts with your family, not with a product brochure.

So let’s begin there.

Tip 1: Start With Who Depends on You

Before asking “which policy?”, ask a simpler question: “If my income stopped tomorrow, whose life would change?”

The answer changes with your life stage.

Life stage	Typical need for life cover
Single, no dependants	Low. Cover only if parents depend on you or you have a loan someone else would inherit.
Married, no children	Moderate. Your spouse’s lifestyle and any joint loans need protection.
Young children at home	Highest. Education, daily expenses and loans all depend on your income for years.
Children settled, loans closed	Falling. Your own investments start doing the work.
Retired	Usually none. There is no active income left to replace.

Can you get life insurance on yourself? Yes. In fact, that is the normal case. You are both the proposer (who pays) and the life assured (whose life is covered), and you name your family members as nominees.

What should you do? Write down every person and every obligation that leans on your income. That list is the foundation of your insurance plan. The next tip turns it into a number.

Tip 2: Calculate the Right Cover, Not a Round Number

“₹1 crore sounds good.” That’s how many people decide their cover. It feels like a big, safe number. Sometimes it is. Often it isn’t.

There are three practical ways to calculate how much life insurance you need. Use at least two and compare.

Method 1: The Thumb Rule (10 to 15 Times Your Annual Income)

This is the quick “10x rule” you’ll hear everywhere. If you earn ₹15 lakhs a year, it suggests a cover of ₹1.5 crore to ₹2.25 crore.

It’s a useful sanity check. But it knows nothing about your loans, your goals or what you have already saved.

Method 2: The Expense Method

This method builds the number from your family’s actual needs:

• Family expenses: annual household expenses × 20 (a rough proxy for a corpus that can fund those expenses for many years)
• Plus, outstanding loans: home loan, car loan, personal loans
• Plus, major future goals: children’s higher education, marriage
• Minus existing assets: investments your family can actually draw on

Method 3: Human Life Value (HLV)

HLV calculates today’s value of all the income you are likely to earn until retirement. It’s the most rigorous of the three.

We have explained the formula with a worked example in our guide, A Simplified Guide: How to Cover Yourself Prudently with Life Insurance.

A Worked Example: Arun’s Cover

Arun is 34, lives in Chennai, earns ₹15 lakhs a year and spends about ₹60,000 a month (₹7.2 lakh a year) on his family.

Component	Amount
Family expenses (₹7.2 lakh × 20)	₹1.44 crore
Plus: home loan outstanding	₹35 lakh
Plus: child’s higher education goal (today’s value)	₹25 lakh
Minus: existing investments (EPF, mutual funds)	– ₹20 lakh
Life cover needed	₹1.84 crore

Illustrative example for education only. Actual cover depends on your income, expenses, goals and existing assets.

Arun’s thumb-rule range (₹1.5 crore to ₹2.25 crore) agrees: ₹1.84 crore sits comfortably inside it. So a cover of around ₹1.85 crore to ₹2 crores is well grounded.

Notice what we did not count: Arun’s employer group cover. That cover usually ends the day the job ends, which is exactly when a family may need it most.

Your family doesn’t need a round number. They need the right number.

Once you know how much cover you need, the next question is what kind of policy should carry it. This is where most mistakes happen.

Tip 3: Buy Insurance for Protection, Not for Returns

Here’s a question I ask almost every new client: “If your policy gave you zero returns, would you still buy it?”

For a pure term plan, the answer is an easy yes. That’s the whole point of it.

For endowment, money-back and “guaranteed return” plans, the answer usually reveals why they were bought in the first place.

Pure term insurance gives a large death benefit for a small premium, because none of your money is being set aside for investment.

That leaves the rest of your budget free to go where it can actually grow.

Feature	Pure term plan	Endowment / money-back plan
Main purpose	Protection only	Protection + savings combined
Cover for the same premium	Very high	Much lower
Maturity benefit	None (in a pure term plan)	Yes
Return on savings portion	Not applicable	Typically modest, and fixed at purchase
Flexibility to exit	Stop paying; cover ends	Early surrender can mean a loss

Myth: “Term insurance is a waste because I get nothing back.”

Reality: You get the one thing you paid for: years of protection. You don’t ask for a refund on your home insurance because your house didn’t burn down.

Buy insurance for the family you have, not for the returns you want.

If you already hold such policies, don’t panic and don’t surrender in a hurry.

Exiting has its own costs. Our article Is Your Life Insurance Policy Hurting Your Portfolio? walks through how to evaluate them calmly.

Two products deserve a closer look, because they are sold most aggressively as “investment plus insurance”: ULIPs and pension plans.

Tip 4: Understand the Problems with ULIPs Before You Sign

A Unit Linked Insurance Plan (ULIP) is a little like a Swiss Army knife.

It has a blade, a screwdriver and a bottle opener. Handy in a pinch, but you wouldn’t cook dinner for your family with it.

ULIPs combine market-linked investment with life cover. On paper, it sounds efficient. In practice, here’s what buyers often discover later:

• Front-loaded charges: premium allocation, policy administration, mortality and fund management charges are deducted from your money, and they bite hardest in the early years.
• Thin life cover: many ULIPs offer cover of around 10 times the annual premium, far below what most families actually need (remember Arun’s ₹1.84 crore).
• Rising mortality charges: the cost of the life cover goes up as you age, and it is deducted from your fund value.
• Five-year lock-in: if you stop paying early, your money moves to a discontinued policy fund and stays there until the lock-in ends.
• Tax-free status has limits: for ULIPs issued on or after 1 February 2021, maturity proceeds are tax-free only if the aggregate annual premium does not exceed ₹2.5 lakh.

So what? A ULIP asks one product to do two different jobs. When you separate them, a pure term plan for protection and a suitable investment chosen through your financial plan, you can see and control the cost of each.

ULIPs at least let you see your fund value grow or fall. Pension plans hide their biggest catch until the day you retire.

Tip 5: Pension Plans: The Tax Surprise Most Buyers Miss

Picture this. Lakshmi retires at 60 with ₹50 lakhs in an insurance pension plan. She is told she will get a “guaranteed pension for life”.

What nobody mentioned is how much of it the taxman will share.

Let’s clear the biggest misunderstanding first.

Yes, Pension Income Is Taxable

The regular pension (annuity) you receive from a life insurance pension or annuity plan is added to your income and taxed at your slab rate every single year.

It is not tax-free just because it comes from an insurance company.

At vesting, you can usually take only a portion of the corpus as a lump sum.

The rest must be used to buy an annuity, and that annuity income is fully taxable.

Lakshmi’s pension (illustrative)	Amount
Corpus used to buy annuity	₹50 lakh
Annual pension at an assumed 6.5% annuity rate	₹3.25 lakh
Tax if she falls in the 30% slab (30% + 4% cess)	– ₹1.01 lakh
Pension she actually keeps each year	₹2.24 lakh (about ₹18,600 a month)

Illustrative figures based on an assumed annuity rate. Actual annuity rates vary by insurer, age and option chosen, and tax depends on your total income and chosen tax regime.

The Other Problems With Pension Plans

• Your rate is frozen for life. The annuity rate is fixed when you buy it, no matter what happens to interest rates later.
• Inflation quietly eats it. At 6% inflation, prices roughly double in 12 years. A fixed ₹18,600 a month then buys only about half of what it does today.
• Limited liquidity. Once you buy an annuity, getting your capital back early is usually difficult or impossible.
• Low cover during the build-up years. Like ULIPs, insurance-based pension plans rarely provide the life cover a family needs.

A pension is just a salary that retires with you. And the taxman retires along with it.

A note on whole life insurance for retirement: you may come across advice on using whole life insurance as a retirement plan. These policies cover you up to a very old age (often 99 or 100), so a large part of your premium pays for protection you may not need after retirement.

For most families, retirement is better planned as its own goal, with insurance doing only the protection job.

What should you do? If retirement income is the goal, plan it as part of your financial plan. Look at the full picture: tax, inflation, flexibility and what happens if you need the money early.

Our ₹3 Crore Retirement Corpus guide shows how to think about this step by step.

Now that the product question is settled, the next tips are about buying the right policy the right way.

Tip 6: Choose the Right Policy Term and Buy Early

How long should your cover last? A practical answer: until the year you plan to retire.

That’s when your earning years’ end and, ideally, your dependants and loans no longer rely on your income.

Stretch it further if your home loan runs beyond retirement or your youngest child will still be studying.

Why buy early? Term insurance premiums are based on your age and health on the day you buy.

Buy at 30 and that lower premium is typically locked for the entire term.

Wait until 40, and you pay more every year, assuming your health still qualifies you at all.

Two cost updates worth knowing:

• From 22 September 2025, premiums on individual life insurance policies, including term plans, are exempt from GST. Group policies are outside this exemption.
• From 1 April 2026, the Income Tax Act, 2025 replaced the 1961 Act. The deduction for life insurance premiums (earlier Section 80C, now Section 123) of up to ₹1.5 lakh is available only if you choose the old tax regime. Under the default new regime, there is no deduction.

In other words, tax saving is a bonus, not a reason. If you are in the new regime, the decision should rest purely on protection, which is how it should be anyway.

Tip 7: Disclose Everything and Check Claim Settlement

A life insurance policy is a promise. The claim stage is when that promise is tested, and your family will be the one dealing with it, not you.

Disclose honestly. Smoking, alcohol, existing illnesses, family medical history, other policies you hold, your income: declare all of it on the proposal form. It may raise your premium slightly. Hiding it can cost your family the entire claim.

Under Section 45 of the Insurance Act, once a policy completes three years, the insurer cannot reject a claim on any ground, including misstatement. But a claim in the first three years can be questioned if something material was hidden.

A policy you hide things from is a policy that may hide from you at claim time.

Check the insurer’s claim record. Look at the claim settlement ratio, and also the amount-wise settlement ratio, which shows whether larger claims are being paid too. Look at the trend over several years rather than one year’s number. IRDAI publishes these figures in its annual report.

Tip 8: Add Riders Only Where There Is a Real Gap

Riders are optional add-ons to your base policy. Some are genuinely useful. Others duplicate cover you already have.

Rider	What it does	Worth considering if…
Accidental death benefit	Extra pay-out if death is due to an accident	You travel or commute a lot
Critical illness	Lump sum on diagnosis of listed illnesses	Your health insurance alone won’t cover income loss during treatment
Waiver of premium	Future premiums waived on disability or critical illness	You want the policy to continue even if your income stops
Terminal illness	Early pay-out on terminal diagnosis	Often built in; check before paying extra

Practical tip: read the rider definitions, especially the list of illnesses covered and the waiting periods.

And remember the free-look period. If the policy documents don’t match what you were told, you can return the policy within 30 days of receiving it, subject to deductions for stamp duty, medical costs and proportionate risk premium.

Tip 9: Set Up Nominations, Tell Your Family and Review

Here’s the strangest gap I see: families with a well-chosen policy that nobody at home knows about.

• Nominate correctly and keep nominee details up to date after marriage or the birth of a child.
• Consider the Married Women’s Property Act (MWPA) option when buying a term plan, if you are a married man. It ensures the pay-out goes only to your wife and children and stays protected from creditors.
• Tell your family where the policy documents are, which insurer to contact and how a claim works.
• Review your cover whenever life changes: a big jump in income, marriage, a child, a new home loan or a change in your retirement plans.

Insurance planning isn’t a one-time purchase. It is part of your financial plan, and it should be reviewed with it.

A Quick Life Insurance Planning Checklist

Before you buy, run through this list:

☐ I have listed everyone who depends on my income.

☐ I have calculated my cover using at least two methods.

☐ I have not counted my employer group cover as permanent protection.

☐ My protection comes from a pure term plan, kept separate from my investments.

☐ I understand the charges, lock-in and tax limits of any ULIP I hold.

☐ I know that pension income from an annuity is taxable at my slab rate.

☐ My policy term runs at least until my planned retirement.

☐ I have disclosed every health and lifestyle detail honestly.

☐ I have checked the insurer’s claim settlement record over several years.

☐ I have chosen riders only for real gaps.

☐ My nominations are correct and my family knows where the documents are.

Getting It Right for Your Family

If you have read this far, you probably already sense where your own plan stands. Maybe your cover is a round number. Maybe a policy you hold is doing two jobs badly. Or maybe you simply aren’t sure.

That uncertainty is normal. The right cover, term and structure depend on your income, goals, loans and existing investments, and they change as your life does.

At Holistic Investment, we always start with your financial plan and only then look at products.

If you’d like a Certified Financial Planner to check whether your life insurance actually fits your family’s goals, book an Initial Guidance Call (No Cost) with us.

Good insurance planning doesn’t make your family richer. It makes sure they never have to become poorer.

Frequently Asked Questions

Q1. What are the key things to consider before buying life insurance?

Start with who depends on your income, calculate the cover you need, choose a pure term plan for protection, pick a policy term that runs until retirement, disclose everything honestly and check the insurer’s claim settlement record.

Q2. What is the 10x rule for life insurance?

It suggests your life cover should be at least 10 times your annual income (many planners use a range of 10 to 15 times).

It is a quick sanity check. A proper calculation that includes your loans, goals and existing investments gives a more reliable number.

Q3. How much life insurance do I need in India?

Use the expense method (annual family expenses × 20, plus loans and major goals, minus existing assets) and compare it with the 10 to 15 times income thumb rule or your Human Life Value.

If the numbers broadly agree, you have a well-grounded cover amount.

Q4. What are the 7 types of life insurance in India?

The commonly discussed types are term insurance, whole life insurance, endowment plans, money-back plans, unit linked insurance plans (ULIPs), pension or annuity plans, and child plans.

Only term insurance is a pure protection product. The rest combine protection with savings or investment.

Q5. What are the 7 rules (principles) of insurance?

The seven principles usually taught are utmost good faith, insurable interest, indemnity, contribution, subrogation, proximate cause (causa proxima) and loss minimisation.

For life insurance buyers, utmost good faith matters most: it is why full and honest disclosure is essential.

Q6. Is pension income from an insurance pension plan taxable?

Yes. The regular pension (annuity) you receive is added to your income and taxed at your slab rate every year.

Only the portion of the corpus you are allowed to take as a lump sum at vesting may receive different tax treatment, depending on the plan.

Q7. Are ULIPs a good way to combine insurance and investment?

ULIPs carry front-loaded charges, a five-year lock-in and usually low life cover. For ULIPs issued on or after 1 February 2021, maturity is tax-free only if the aggregate annual premium is within ₹2.5 lakh.

Most families get more clarity by keeping protection (term plan) and investment separate.

Q8. Can I get life insurance for myself?

Yes. You can be both the proposer and the life assured, and name your family as nominees. Most people buy life insurance on their own life.

Q9. Is GST charged on term insurance premiums?

No. From 22 September 2025, premiums on individual life insurance policies, including term plans, are exempt from GST. Group policies are outside this exemption.

Q10. Can I still claim a tax deduction on life insurance premiums?

Yes, up to ₹1.5 lakh under Section 123 of the Income Tax Act, 2025 (earlier Section 80C), but only if you choose the old tax regime. There is no deduction under the default new regime.

Q11. Is the death benefit from life insurance taxable?

No. The amount received by the nominee on the death of the life assured is exempt from tax.

Disclaimer: This article is for educational purposes only and is not a recommendation to buy, sell or surrender any specific insurance or investment product. Tax rules referred to are as applicable from 1 April 2026 and may change; please verify your own position before acting. Examples and figures are illustrative. Mutual fund investments are subject to market risks; read all scheme-related documents carefully. Holistic Financial Services is an AMFI-registered Mutual Fund Distributor (ARN-4188) and APMI-registered PMS Distributor. The firm’s directors hold individual IRDAI licences.