For decades, two pieces of financial advice have formed the backbone of Indian households:
Buy a term insurance plan. Start a SIP.

This formula has guided millions toward responsible financial habits and remains the right starting point for anyone building financial security.

But what most investors never revisit is whether these choices remain equally relevant at every life stage.

And this is where a critical gap appears.

Even after achieving Financial Independence — a situation where your family no longer depends on your salary for day-to-day living or long-term goals — many investors continue paying term insurance premiums out of inertia. Not out of need. Not out of logic. But simply because “this is what I’ve always done.”

This newsletter breaks down this question with data, industry standards, and financial first principles — not opinions or emotion. It uses IRDAI, AMFI, and global research institutions to examine whether carrying term insurance after Financial Independence is actually rational… or a hidden drag on long-term wealth creation.

What Financial Independence Really Means — Beyond the Buzzword

Financial Independence is not a motivational concept. It is a measurable financial condition.

You are considered financially independent when your assets, investments, and portfolio returns can sustainably support your lifestyle, future goals, and emergencies — without relying on active income.

This typically means:

• Your family’s lifestyle is fully funded through your portfolio
• You no longer worry about income volatility
• Your financial goals (children, retirement, obligations) are secured
• You can walk away from your job without compromising your standard of living

At this stage, income is no longer the financial risk.
Therefore, any product designed specifically to replace income needs to be re-evaluated.

What Term Insurance Is Actually Designed For

A pure term plan has one — and only one — objective:

To replace the income of the breadwinner if they die early.

It is not an investment.
It does not generate returns.
It does not build wealth.
It does not compound.
It does not create liquidity.
It only pays out if the insured person dies, and only while the policy is in force.

This purpose is extremely important during the wealth-building years. But after Financial Independence, the core risk disappears: your family no longer relies on your salary.

Meaning: the original purpose of term insurance no longer applies.

This is not opinion — this is globally accepted wealth management logic.

What IRDAI Data Tells Us About Term Insurance After Wealth Accumulation

The Insurance Regulatory and Development Authority of India (IRDAI) publishes persistency data — which tracks how many policyholders continue paying premiums over time.

According to the IRDAI Persistency Report (2023):

• The 5-year persistency ratio for pure protection (term) policies is below 45%.
• This means more than half of term policyholders discontinue their plans before year 5.

Why? Because as income rises and assets grow, the financial need for income replacement reduces drastically.
Higher-income and high-asset individuals naturally gravitate toward self-insurance.

This trend mirrors global patterns.

Global Evidence: What Vanguard & Trinity Study Reveal

Long-term research from:

• Vanguard Research
• Morningstar Retirement Studies
• The Trinity Study (1998, updated through 2022)

…all show the same behavioural and financial trend:

Once a household reaches Financial Independence and meets the 4% Safe Withdrawal Rule,
their investment corpus becomes large enough to sustainably replace income forever.

At this point:

• The household is self-insured through accumulated wealth
• Cash flows replace salary
• Market assets provide the economic value that term insurance is meant to provide

In other words:

Your portfolio becomes your insurance.

India’s SIP Data Strengthens This Argument Further

While term insurance stops creating value after a certain point, SIPs continue building value indefinitely.

According to AMFI India (October 2025):

• Monthly SIP inflows crossed ₹29,529 crore
• Total SIP AUM crossed ₹10.25 lakh crore

These are massive structural numbers, showing how Indian households are increasingly relying on SIPs as their long-term wealth engines.

 AMFI Source:

Now, the return side:
According to AMFI & CRISIL rolling-return studies:

• 15-year SIP returns in Indian equity funds have never been negative
• Long-term SIP returns (10+ years) have historically ranged between 10–12% CAGR

This is not a forecast.
This is past rolling data.

The Pure Numbers: Term Insurance vs SIP Once You’re Financially Independent

Let’s take just one example — fully backed by industry-standard return assumptions.

Case Example: ₹25,000 Annual Term Premium

If you maintain the policy for 20 years:

• Total cost = ₹5,00,000
• Maturity value = ₹0
  (This is confirmed by IRDAI — term plans have no survival benefit.)

If you invest that same amount in a SIP for 20 years:

Using AMFI/CRISIL long-term return range of 10–12% CAGR:

• At 10% CAGR → ~₹15.7 lakh
• At 12% CAGR → ~₹19.84 lakh

This is real money lost to opportunity cost.

For higher-income households paying ₹1 lakh annual premium:

• At 10% CAGR → ~₹63.63 lakh
• At 12% CAGR → ~₹82.69 lakh

Over 20 years, that is the financial cost of keeping an unnecessary term plan after Financial Independence.

A Clean, Data-Driven Comparison Framework

When Should You Consider Discontinuing Term Insurance?

Here is the refined, globally accepted, wealth-management standard:

ONLY when you meet the 4% Safe Withdrawal Rule (Trinity Study)

This means: Your investment corpus is large enough that withdrawing 4% of assets annually can sustain your lifestyle forever.

This is the world’s most recognised benchmark for long-term portfolio sufficiency.

Additionally:

• All liabilities should be cleared
• Health insurance should be robust
• Emergency buffers should be in place
• Investments must be well-diversified and professionally monitored

If these conditions are not met:
Retain the term cover. It is still valuable.

So, What Should a Financially Independent Person Actually Do?

Here is the balanced — but clear — conclusion:

• If your family’s expenses, goals, liabilities, and emergencies are fully secured by your existing investment corpus (as validated by the 4% rule), the financial logic for continuing term insurance becomes weak.
• At that point, redirecting the premium to SIPs produces more compounding, more liquidity, and more long-term wealth creation.

Insurance protects your income.
SIPs build your wealth.
After Financial Independence, the role you need more is the second one.

Final Thought

After reaching Financial Independence, the way you allocate capital becomes more important than the way you protect income.

The question evolves from:
“What happens if something happens to me?”
to
“Is this the best possible use of my capital for the next 20 years?”

Your portfolio becomes your protection.
Compounding becomes your safety net.
And efficiency becomes your responsibility.