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Insurance basics for families: protect income first, then health

6 min read
Young family with a baby and an older child outside their home

Short answer: Insurance is protection, not an investment. For most families the order is simple. First, protect the earner’s income in case they die (term life cover). Second, protect against big hospital bills (health cover, including government schemes like PM-JAY if you’re eligible). Two low-cost government schemes, PMJJBY and PMSBY, give basic life and accident cover for under ₹500 a year. Since 22 September 2025, premiums (what you pay for the cover) for individual life and health policies carry no GST.

Paisavy explains how insurance works. We don’t compare or recommend insurers or policies.

The situation

Vijay, 30, is the only earner for his wife, their baby and his mother. An agent suggests a policy that “gives money back after 20 years”. Vijay isn’t sure what his family actually needs.

Term vs endowment: the key difference

Term insurance Endowment / money-back
Pays out Only if the insured person dies during the term (the years the policy runs) On death, or a fixed amount when the policy ends (maturity)
Cost for the same cover Low Much higher
Purpose Replace income for the family Insurance mixed with savings

An endowment plan “gives money back” because you paid much more in premiums. For the same budget, term insurance usually gives far bigger cover. So compare cover per rupee, not just returns.

Government schemes worth knowing

Scheme Who Cover Premium
PMJJBY (life) Age 18–50 to join, with a bank account ₹2 lakh on death from any cause ₹436 a year, taken from your bank account automatically
PMSBY (accident) Age 18–70, with a bank account ₹2 lakh for accidental death or total disability; ₹1 lakh for partial disability ₹20 a year
Ayushman Bharat PM-JAY (health) Eligible families on the government lists; all citizens aged 70+ Up to ₹5 lakh per family per year for hospital treatment Free for eligible people

A ₹ example

Fictional. Calculated by Paisavy.

Vijay and his wife both join PMJJBY and PMSBY: (₹436 + ₹20) × 2 = ₹912 a year, about ₹76 a month.

  • If Vijay dies of illness: ₹2 lakh (PMJJBY).
  • If he dies in an accident: ₹2 lakh + ₹2 lakh = ₹4 lakh.

The family’s basic needs cost ₹20,000 a month, which is ₹2.4 lakh a year. The schemes give a useful base. But they’d cover only about 10 months (illness) to 20 months (accident) of living costs, which is why many families also buy term cover worth several years of income.

Health insurance words to understand

  • Sum insured: the most the policy pays in a year.
  • Waiting period: the time before some conditions are covered, such as illnesses you already had when you bought the policy (pre-existing diseases).
  • Co-pay: the share of every bill that you pay yourself.
  • Room-rent limit: a cap on the room price. If you pick a more expensive room, the insurer can cut the whole claim, not just the room charge.
  • Cashless vs reimbursement: with cashless, the insurer pays the hospital directly. With reimbursement, you pay first and claim the money back later.
  • Free-look period: a short time after buying when you can cancel and get your premium back.

If a claim is rejected

  1. Complain to the insurer in writing.
  2. Not sorted out? Use the complaint system of IRDAI (the insurance regulator), called Bima Bharosa: https://bimabharosa.irdai.gov.in
  3. After that, go to the Insurance Ombudsman, an office that settles complaints against insurers for free: https://www.cioins.co.in

What to check today

  1. Look in your bank passbook for a ₹436 or ₹20 debit around May–June. If you find one, you may already be a member of PMJJBY or PMSBY.
  2. If a parent is 70 or older, check whether they can get an Ayushman Vay Vandana card.
  3. Before buying any policy, ask: “How much cover do I get per rupee of premium, and what isn’t covered?”

Sources and review

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Educational information, not financial advice. Found an error? Tell us → · Corrections log

Frequently asked questions

Is term insurance better than a money-back policy?

For replacing an earner's income, term insurance usually gives far bigger cover for the same budget. It pays out only if the insured person dies during the term (the years the policy runs). A money-back or endowment plan mixes insurance with savings, so the same cover costs much more. Compare cover per rupee, not just the money you get back.

What are PMJJBY and PMSBY, and how much do they cost?

They are two low-cost government schemes for people with a bank account. PMJJBY (join at age 18–50) pays ₹2 lakh on death from any cause, for ₹436 a year. PMSBY (age 18–70) costs ₹20 a year. It pays ₹2 lakh for accidental death or total disability, and ₹1 lakh for partial disability. Look in your passbook for a ₹436 or ₹20 debit around May–June.

Is there GST on term and health insurance premiums?

Not on individual policies. Since 22 September 2025, premiums (what you pay for the cover) for individual life and health insurance carry no GST. If a quote for an individual policy still adds GST, ask the insurer to explain it in writing.

Who can get Ayushman Bharat PM-JAY cover?

Families on the government lists can get it, and so can all citizens aged 70 and above. PM-JAY gives up to ₹5 lakh per family per year for hospital treatment. It is free for eligible people. If a parent is 70 or older, check whether they can get an Ayushman Vay Vandana card. Also read Hospital emergency without insurance.

What can I do if my health insurance claim is rejected?

First, complain to the insurer in writing and keep a copy. If that doesn't sort it out, use Bima Bharosa, the complaint system of IRDAI (the insurance regulator), at bimabharosa.irdai.gov.in. After that, you can go to the Insurance Ombudsman, an office that settles complaints against insurers for free. Keep the claim papers, bills and every reply together.

What does room-rent limit mean in health insurance?

It is a cap on the room price your policy will pay in hospital. If you pick a more expensive room, the insurer can cut the whole claim, not just the room charge. Before you buy, also check the co-pay (the share of every bill you pay yourself). Look at the waiting period too: the time before illnesses you already have are covered.