Contents (18 chapters)
9. Insurance
What your offer letter's group cover actually gives you, where it stops, and how the three products work.
9.1 What insurance is for
Insurance transfers a low-probability, high-severity financial loss to a pool, in exchange for a certain, small premium. It is not an investment, and products that combine the two generally do both badly.
On life insurance specifically: high expenses, high fees, and punitive exit clauses make bundled life-insurance-plus-investment products a poor long-term investment vehicle. That holds in India, where ULIPs and endowment policies remain heavily sold.
The three risks an early-career engineer is actually exposed to:
| Risk | Product | Who needs it |
|---|---|---|
| You die while people depend on your income | Term life insurance | Only if someone depends on your income |
| You or your family incur large medical costs | Health insurance | Everyone |
| You are disabled and can no longer earn | Personal accident / disability cover | Everyone earning |
9.2 What your offer letter gives you
Indian employers typically provide three group policies. They appear in your CTC as a premium line of roughly ₹8,000–₹25,000 a year.
| Policy | Common name | Typical cover |
|---|---|---|
| Group Medical Coverage | GMC / group mediclaim | ₹3–10 lakh family floater; sometimes parents at extra cost |
| Group Term Life Insurance | GTLI | 1×–5× annual CTC, or a flat ₹25–50 lakh |
| Group Personal Accident | GPA | 1×–3× annual CTC for accidental death and disability |
The employer-paid premium is not a taxable perquisite. This is genuinely valuable: you receive cover at zero tax cost.
Separately, EDLI under the EPF scheme provides your nominee up to ₹7,00,000 if you die in service (see §7.8).
Where group cover stops
This is the operative point, and it is why group cover is a supplement rather than a plan.
| Limitation | Consequence |
|---|---|
| It ends when employment ends | Resignation, termination, layoff, or a career break: cover ceases, usually on the last working day |
| It ends when you need it most | The scenario in which you lose your job is often correlated with the scenario in which you get ill |
| The employer can change or withdraw it | Sum insured, parental inclusion and co-pay terms are renegotiated annually. Many Indian employers reduced parental cover or added co-pays through 2023–25 |
| Sums insured are modest | A ₹5 lakh floater does not cover a serious cardiac or oncology episode in a metro private hospital |
| You build no personal claim history | Continuous coverage under a personal policy is what clears waiting periods and the moratorium (§9.5). Years on a group policy do not carry over to a new personal policy, except through specific portability provisions |
| Buying later costs more, and may not be possible | Premiums rise with age, and a condition diagnosed while on group cover becomes a pre-existing disease on any policy you buy afterwards |
The last row is the one that matters most. The cheapest and most certain time to buy personal cover is while you are young and healthy, which is precisely when the employer's policy makes it feel unnecessary.
9.3 The GST change
On 3 September 2025 the GST Council exempted individual life and health insurance. Effective 22 September 2025:
| Policy type | GST before | GST from 22 Sep 2025 |
|---|---|---|
| Individual life insurance: term, endowment, ULIP | 18% | 0% |
| Individual health insurance: individual, family floater, senior citizen | 18% | 0% |
| Group insurance: employer-sponsored GMC and GTLI | 18% | 18% |
Individual policies became up to 18% cheaper. Group policies did not change. So the price gap between employer-arranged cover and a personal policy narrowed materially.
9.4 Term life insurance
What it is
Pure protection. You pay a level premium for a defined term; if you die within it, the nominee receives the sum assured. If you survive the term, nothing is paid and nothing is returned. That absence of a maturity value is what makes it cheap.
Do you need it?
Only if someone would suffer financially if your income stopped. A 24-year-old with no dependants, no home loan and no financial obligation to parents has no economic case for life insurance. The same person at 30 with a spouse, a child and a ₹60 lakh home loan clearly does.
Life insurance is typically bought at marriage or when planning a child; that is the point at which dependants exist.
How much
Common benchmarks in India are 10–15× annual income, with some insurers now arguing for 15–20× given medical and education inflation. Reporting in 2026 suggests ₹1.5 crore is displacing ₹1 crore as the reference figure for urban families.
The benchmark is a shortcut for an actual calculation:
Cover needed = outstanding debts (home loan, education loan, personal loan)
+ years of income replacement your dependants require
+ specific future costs (children's education, marriage)
− existing assets that could be liquidated
− existing cover (group + EDLI)
Why costs are non-linear
The probability of death rises with age, so a 30-year policy is far more than three times the cost of a 10-year policy. Buying young locks a low level premium for the entire term. Premiums for a healthy non-smoker in their twenties are extremely low relative to the cover; this is the single cheapest protection available to an Indian engineer.
The forms, and which to avoid
| Type | Structure | Notes |
|---|---|---|
| Term: level cover | Fixed sum assured throughout | The standard form |
| Term: decreasing cover | Sum assured reduces over time | Sometimes sold alongside home loans |
| Term with return of premium (TROP) | Premiums returned if you survive | Materially more expensive; the "return" is your own money after decades of zero real return |
| Endowment / money-back | Insurance bundled with savings | High cost, low cover, poor returns; surrender values in early years are punitive |
| ULIP | Insurance bundled with market-linked investment | High charges, 5-year lock-in; the insurance component is typically small |
| Whole life | Cover to age 99/100 | Expensive; relevant mainly for estate-planning cases |
The conclusion that follows: for pure protection, term life insurance. The bundled products' costs are not visible at the point of sale.
Practical points specific to India
- Disclose everything on the proposal form: medical history, smoking, alcohol, hazardous activities, family history, and existing policies. Non-disclosure is the leading cause of claim rejection.
- Section 45 of the Insurance Act, 1938: after 3 years from commencement (or revival), a life policy cannot be repudiated on grounds of misstatement or suppression of fact. Fraud is treated separately.
- Claim settlement ratio is published annually by IRDAI and is worth checking, though it should be read alongside claim amount settled and average settlement time.
- Riders (critical illness, accidental death benefit, waiver of premium) add cost; evaluate each against a standalone product.
- Section 126 (80D) covers health, not life. Life insurance premium falls under Section 123 (formerly 80C): old regime only.
- Death benefit received by the nominee is exempt from tax. Note that for policies issued after 1 April 2023 with annual premium above ₹5 lakh (₹2.5 lakh for ULIPs), the maturity proceeds may be taxable; this does not affect pure term policies, which have no maturity proceeds.
9.5 Health insurance
The product everybody needs and almost nobody reads.
The mechanics that determine whether a policy actually pays
| Feature | What it means | What to check |
|---|---|---|
| Sum insured | Maximum payable per policy year | Metro private hospital costs for cardiac, oncology or neuro episodes routinely exceed ₹10 lakh |
| Individual vs family floater | Floater shares one sum insured across the family | One serious claim can exhaust the floater for everyone |
| Room rent limit | Cap on daily room charges, often 1%–2% of sum insured | The most damaging clause in Indian health insurance. If you exceed the limit, proportionate deduction applies: the insurer scales down the entire bill, not just the room charge |
| Co-pay | A percentage of each claim you bear | Common on senior-citizen and some group policies |
| Sub-limits | Caps on specific procedures: cataract, knee replacement, maternity | Frequently far below actual cost |
| Initial waiting period | Typically 30 days for non-accident claims | Standard |
| Specific-ailment waiting period | Typically 24 months for hernia, cataract, joint replacement, etc. | Varies by insurer |
| Pre-existing disease (PED) waiting | Capped at 36 months by IRDAI (reduced from 48) | Anything diagnosed before the policy starts |
| Pre- and post-hospitalisation | Typically 30 and 60 days of related expenses | Covers diagnostics before and follow-up after |
| Daycare procedures | Treatments needing under 24 hours | Should be broadly covered; most modern procedures are daycare |
| Restoration / refill | Sum insured is reinstated after exhaustion | Check whether it applies to the same illness or only a different one |
| No-claim bonus | Sum insured increases each claim-free year | Typically 10%–50% a year up to a cap |
| Network hospitals | Where cashless treatment is available | Check that hospitals near you and near your parents are in-network |
IRDAI rules currently in force
The Master Circular on Health Insurance Business dated 29 May 2024 consolidated 55 earlier circulars and reset several core rules. As at August 2026:
- Cashless pre-authorisation must be decided within 1 hour of the insurer receiving the request.
- Final discharge authorisation within 3 hours of the hospital's request.
- PED waiting period capped at 36 months (previously up to 48).
- Moratorium of 60 months (reduced from 96): after 60 months of continuous coverage, a claim cannot be contested on grounds of non-disclosure or misrepresentation. Proven fraud remains an exception, and the moratorium does not override a permanent exclusion, a sub-limit, or a co-pay that was in the policy all along.
- No age limit on the sale of health policies.
- Policyholders may port between insurers, and switch between products of the same insurer, carrying accrued waiting-period credit.
Top-up and super top-up
Cheap ways to raise total cover:
| Top-up | Super top-up | |
|---|---|---|
| Deductible applies to | Each individual claim | Cumulative claims in the policy year |
| Example | ₹5 lakh deductible: a ₹4 lakh claim pays nothing, even twice over | ₹5 lakh deductible: two ₹4 lakh claims aggregate to ₹8 lakh, and ₹3 lakh is paid |
| Practical | Weaker | Materially better for the same premium |
A common structure is a base personal policy plus a super top-up with a deductible set near the base sum insured; total cover rises steeply for a small premium, because the top-up insurer only pays in rare, large events.
Parents
Parental cover is where Indian household health economics differs most from the US model.
- Employer group policies often include parents, sometimes at employee cost, and terms are renegotiated annually.
- Buying a separate senior-citizen policy for parents is markedly more expensive and involves longer PED waiting periods and higher co-pays.
- The waiting-period clock is the reason to buy early. A 36-month PED wait started at 58 completes at 61. Started at 68, it completes at 71.
9.6 Personal accident and disability cover
Underweighted relative to its importance. Disability is financially worse than death for an earning individual: income stops and expenses rise simultaneously.
A personal accident policy typically covers:
- Accidental death
- Permanent total disablement
- Permanent partial disablement, on a scheduled percentage basis
- Temporary total disablement: a weekly benefit while unable to work, in some policies
Employer GPA cover is common but ends with employment. Standalone personal accident cover is inexpensive relative to the sum insured.
9.7 Section 126: tax deduction on health insurance
Old regime only. Formerly Section 80D.
| Premium paid for | Deduction limit |
|---|---|
| Self, spouse, dependent children (all below 60) | ₹25,000 |
| Self, spouse, dependent children (where the eldest insured is a senior citizen) | ₹50,000 |
| Parents: below 60 | Additional ₹25,000 |
| Parents: senior citizens (60+) | Additional ₹50,000 |
| Maximum combined | ₹1,00,000 |
Preventive health check-up: up to ₹5,000, within the above limits, not in addition. Uniquely, this component may be paid in cash; all other premiums must be paid by non-cash means to qualify.
Not available in the new regime. For an engineer on the new regime, health insurance is bought for cover, not for deduction (which is the correct reason to buy it in any case).
9.8 What is not insurance
Products routinely sold to young Indian engineers as insurance that are principally investment products with an insurance wrapper:
- ULIP: Unit Linked Insurance Plan. Market-linked investment with a small life cover attached. Five-year lock-in, and charges (premium allocation, policy administration, fund management, mortality) that are hard to compare with a mutual fund's single expense ratio.
- Endowment and money-back policies: low cover, low return, long commitment, punitive early surrender values.
- Guaranteed return plans: the "guarantee" is typically an internal rate of return in the 5%–6% range over a long horizon, comparable to a fixed deposit but far less liquid.
- Child plans: an endowment policy with a marketing narrative attached.
None of these are frauds; they are simply expensive, illiquid, and opaque relative to the alternative of term insurance plus a separate investment. That separation is the whole point.
9.9 Checklist
- Find the actual sum insured on your employer's GMC, and whether parents are covered
- Check the room rent limit on the group policy; proportionate deduction is where group cover most often disappoints
- Establish what happens to all three group policies on your last working day
- Decide whether anyone depends on your income; if so, size term cover and buy it while young
- Consider a personal health policy independent of employment, to start the waiting-period and moratorium clocks
- Check whether personal accident cover exists outside the employer policy
- Nominate on every policy, including the employer's
- Disclose medical history completely on every proposal form
- If on the old regime, confirm Section 126 (80D) is claimed; if on the new regime, note that it is not available and buy on cover, not tax