7 Things to know before buying Term Insurance in 2025

Introduction

Term insurance continues to be an essential financial safeguard for families even as we move into 2025. However, it’s safe to say that the insurance landscape is changing quickly. From stringent underwriting procedures to new features like instant payouts, there are many nuances new customers should be wary of. So, in this article, we will break down these changes so that you know exactly what to do when buying a term insurance policy.

Choosing the Right Insurance Provider is Key

This should come as no surprise, but the important factor when buying a term insurance policy in 2025 is still the quality of the insurer. While some companies have introduced innovative products that add significant value, others continue to offer basic, uninspiring products.

This is why it’s essential to assess your specific needs before selecting a provider. Do you require an accidental cover? What level of critical illness protection do you need? Would you like to include your spouse in the policy? Answering these questions can help you narrow down your options, which is important since only a few insurers offer plans tailored to these diverse requirements.

In addition, certain key metrics can help evaluate an insurer’s reliability:

• Claim settlement ratio: 97% or higher
• Solvency ratio: Close to 2
• Amount received in premiums: At least ₹5,000 crore per year

This should be a good starting point for most people.

Critical Illness Benefits: Still Important, but with New Limitations

In 2024, several insurers revised their critical illness benefits after IRDAI ruled that premiums for these add-ons couldn’t change over time. As a result, most major insurers now offer these benefits for a limited number of years instead of the full policy term—a significant drawback. In some cases, prices have also witnessed a slight increase.

Our recommendation: Critical illness coverage remains valuable, but you should know that it may not extend for the entire policy duration. Speak with your insurance advisor before finalizing your plan.

Claim Guarantee is the new Buzzword

One of the most common questions from customers buying term insurance is this: “What if I agree to a detailed health checkup so the insurer fully understands my health condition before issuing a policy? Will it guarantee my claim?”

It turns out at least one insurer now offers a term insurance policy with a claim guarantee. This product is available only for specific customer profiles and coverage amounts, and the premiums are slightly higher. Also, if you disclose any pre-existing conditions, the insurer may reject your application. However, if you’ve undergone their thorough medical exams (possibly including radiology) and they still issue the policy, it comes with an explicit guarantee that the claim will be paid out under any circumstance.

This can be an extremely useful option for young, healthy applicants who prefer avoiding claim hassles, even if it means paying higher premiums.

Instant Claim Payouts could be a useful feature

One common challenge policyholders face when making a claim within the first three years of purchasing a policy is the long wait time for claim processing. On average, these claims can take over three months to be settled.

Why does this happen? Insurers impose these delays because claims made within the first three years are classified as “early claims” and require thorough verification to rule out fraud.

However, claims made after the three-year mark are typically processed much faster—often within one to two weeks after submitting the required documents. This leaves a large sub-segment of people with a peculiar problem.

What if you’re one of the few people who need urgent funds while waiting for your claim to be processed within this three-year window. Well, this is why some insurance companies now offer instant payouts (say an immediate transfer of ₹2 lakh). This obviously isn’t the full cover amount, but it can help cover essential expenses during the waiting period.

So, this could be a really useful benefit when buying a term insurance policy.

Underwriting rules are now more rigorous than ever

When you apply for a term insurance policy, insurers typically ask you to complete a medical questionnaire and undergo a medical test to evaluate your overall health. The results help them determine whether to approve your application and under what terms—a process known as underwriting.

Recently, however, insurers have become more cautious while underwriting term insurance policies. At Ditto, we’ve seen an increase in policy rejections, deeper investigations, and counteroffers—where insurers either raise premiums or reduce coverage. We believe this trend will continue into 2025.

Our recommendation: Buy a term plan while you’re in good health. And if you receive a counteroffer or your policy is rejected, consult your advisor to assess your options.

However, there is one exception to this rule.

While insurers have tightened underwriting rules across the board, this trend does not necessarily apply to NRIs, particularly those residing in Gulf Cooperation Council (GCC) countries. In many cases, insurers have eased restrictions for this segment by lowering educational qualification requirements, increasing the maximum coverage available, and even covering the cost of medical checkups before policy issuance.

Zero-Cost Term Policies: Now slightly more attractive.

Zero-cost term policies gained popularity after COVID-19 when insurers introduced a special exit benefit. The concept is simple—you pay regular premiums, and if you surrender the policy within a specific window (e.g., 10 years before expiry), the insurer refunds all your premiums, making it a “zero-cost” policy.

However, these policies initially came with strict conditions. You had to purchase the policy at a young age and opt for a significantly longer term than typically recommended. In 2025, some insurers have relaxed these conditions and even enhanced benefits, such as offering up to 2x the premiums paid under certain circumstances.

If you’re considering this option, consult your advisor to assess whether the special exit benefits align with your needs.

MWP Act: An option to consider

The Married Women’s Property (MWP) Act has also received considerable attention thanks to awareness programs around term insurance. It’s a valuable safeguard if you’re married and have lenders who might claim your assets after your passing. By assigning your life insurance policy under the MWP Act, you ensure that only your chosen beneficiaries (your wife or children) receive the payout and not the creditors.

There are two sections to the MWP Act. Section 6, as discussed above, assists married men in protecting their wives and children by designating them as beneficiaries while negating other parties from accessing the financial benefit. Section 5, on the other hand, helps married women access life insurance plans independently and have complete control over the financial benefits.

However, there’s a big limitation: once you designate a nominee, you cannot change it. This can be problematic in cases of marital disputes, divorce, or changing family dynamics.

Since the decision is irreversible, you’ll have to carefully evaluate whether assigning your policy under the MWP Act makes sense for you.

Conclusion

This article just gave you an inside look at the new features, changes in underwriting rules, and other updates that can affect your policy-buying experience in 2025. So if you’re looking to turn these insights into well-formed decisions, you can always book a free consultation with our advisors at Ditto, where we make sure you are supported every step of the way.