Pure Term Plans — Structure, Benefits & Limitations
What a pure term plan is, why it costs less per rupee of death cover than savings-type life policies, what it does not pay, and the rules on free-look, grace period and tax that apply to it.
What it is
A pure term plan is life cover in its simplest form. It pays a fixed death benefit, the sum assured, to the nominee if the life assured dies during the policy term. If the life assured survives the term, nothing is payable.
There is no savings, investment or maturity component. The premium buys risk cover only, which is why a term plan usually carries a lower premium per rupee of death cover than savings-type life policies.
How the cover is set
The cover available to a person is set by each insurer and depends on age, income and underwriting, meaning the insurer's assessment of health and other risk factors from the proposal. There is no single regulatory formula for it.
One rule of thumb sometimes quoted puts life cover at 10 times annual income plus outstanding loans. It is only a rule of thumb. It is not the Human Life Value method, which works from the present value of future income, and a household's actual position depends on its own income, dependants and liabilities.
The rules today
Term plans are governed by the IRDAI (Insurance Products) Regulations, 2024 and the Master Circular on Life Insurance Products of 12 June 2024. Every buyer has a free-look period of 30 days from receipt of the policy document, whether the policy is bought online or offline; older material quotes 15 days for offline purchases. A policyholder who cancels within it gets the premium back, less the proportionate risk premium for the days on cover, medical examination costs and stamp duty.
If a premium is missed, a grace period applies: 15 days for monthly premiums and 30 days for other modes, with cover continuing during it. A policy that lapses after that carries no cover.
On tax, life premiums qualify for deduction under section 123 of the Income-tax Act, 2025 (section 80C of the 1961 Act), within the overall limit of ₹1,50,000 and only in the old regime; for policies issued from 1 April 2012 the premium must be within 10% of the sum assured. Death proceeds are exempt from income tax (keyman policies are excluded from the exemption). Individual life premiums have carried nil GST since 22 September 2025.
Rules at a glance
Two outcomes of the same policy
Illustration, with assumed figures: Nikhil, 32, holds a pure term plan with a sum assured of ₹1 crore for 25 years at ₹12,000 a year. If he dies in the ninth year with the policy in force, his nominee receives ₹1 crore, although only 9 × ₹12,000 = ₹1,08,000 has been paid in premiums.
If he survives all 25 years, he will have paid 25 × ₹12,000 = ₹3,00,000 and nothing is paid back. That is not a loss on an investment; it is the price of 25 years of cover.
A free-look refund (illustrative figures)
- Assumptions, for arithmetic only: first-year premium paid ₹12,000; the policy is returned on the 12th day after the document is received; the insurer's deductions are ₹40 as proportionate risk premium for the days on cover, ₹1,500 for the medical examination and ₹200 for stamp duty.
- Total deductions = ₹40 + ₹1,500 + ₹200 = ₹1,740.
- Refund = ₹12,000 − ₹1,740 = ₹10,260.
Result. On these assumed deductions the refund is ₹10,260. The actual deductions depend on the policy and on the costs the insurer incurred.
Key points
- A pure term plan pays the sum assured on death during the term and nothing on survival.
- It has no savings or maturity component, so its premium per rupee of cover is usually lower than that of savings-type policies.
- The cover an insurer offers depends on age, income and underwriting.
- Free-look is 30 days from receipt of the policy document, for online and offline purchases alike.
- The premium deduction under section 123 is available only in the old tax regime.
Common misunderstandings
- A term plan has no maturity value: surviving the term brings no payment under a pure term plan.
- The 15-day free-look is out of date: it is 30 days from receipt of the policy document for every channel.
- Ten times income is not a rule of law or the Human Life Value method: it is a rule of thumb.
Questions people ask
What is paid if the life assured outlives a pure term plan?
Nothing. A pure term plan has no maturity or survival benefit.
A person earns ₹10 lakh a year and has a ₹30 lakh loan. What does the 10-times rule of thumb give?
10 × ₹10 lakh = ₹1 crore, plus ₹30 lakh = ₹1.3 crore. It is a rough figure only, not a measure of that household's actual need.
Is the full premium refunded on cancelling in the free-look period?
No. The refund is the premium less the proportionate risk premium for the days on cover, medical examination costs and stamp duty.
What this lesson relies on
- IRDAI (Insurance Products) Regulations, 2024
- IRDAI Master Circular on Life Insurance Products (12 June 2024) — free-look, grace period
- Income-tax Act, 2025 — section 123 and Schedule XV; section 11 read with Schedule II
- GST Council, 56th meeting (3 September 2025) — exemption for individual life insurance policies from 22 September 2025
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.