Life Insurance in Nepal: Term vs Endowment, How Much Cover and Tax Savings
Most life policies sold in Nepal are savings plans with some insurance attached. That suits some people, but if your goal is to protect your family, there is usually a cheaper way to get far more cover.
- A term plan pays only if you die during the term, so it gives the most cover for the premium. An endowment plan also pays back a lump sum at maturity, so it costs much more for the same cover.
- Term plans were under 1% of life premiums in Nepal in FY 2082/83; endowment-type plans were the large majority.
- A common rule of thumb is cover of about 10 times your yearly income, plus any loans your family would have to repay.
- Premiums up to Rs 40,000 a year for life insurance (and Rs 20,000 for health insurance) can be deducted from taxable income.
- Before buying, check how much of its claims the insurer pays. Compare all 14 life insurers.
यो पेज नेपालीमा पनि छ: नेपालमा जीवन बीमा: म्यादी कि सावधिक, कति बीमा चाहिन्छ र करमा छुट
The main types of life insurance in Nepal
| Plan | What it pays | Good for |
|---|---|---|
| Term (म्यादी) | The sum assured if you die during the term. Nothing if you survive. | Maximum protection for a family or a loan, at the lowest cost. |
| Endowment (सावधिक) | The sum assured on death, or the sum assured plus bonus at maturity. | Forced long-term saving with some cover. |
| Money-back (अग्रिम भुक्तानी) | Part of the sum assured paid back every few years, the rest at maturity. | People who want regular payouts, at a higher premium. |
| Whole life (आजीवन) | Cover for life, usually to age 99 or 100. | Leaving a fixed amount to heirs. |
| Child plans | Lump sums at set ages for education or marriage; premiums often waived if the parent dies. | Saving for a child's future. |
| Foreign employment term | Cover while working abroad on a labour permit. | Compulsory for migrant workers. |
Term vs endowment: why the cover is so different
With an endowment plan most of your premium goes into savings that the insurer invests and returns to you at maturity with a bonus. Only a small part pays for the actual risk cover. With a term plan the whole premium pays for cover, so the same yearly amount can buy a sum assured many times larger. The trade-off is that a term plan returns nothing if you outlive it.
Nepal's market leans heavily the other way. In FY 2082/83, endowment-type plans (endowment, money-back, converted endowment and child plans) brought in about 87% of life premiums, while term plans were under 1% (NIA monthly data, Ashar 2083). If protection is the goal, ask the agent for a term quote as well as the plan they recommend.
A common approach is "buy term and invest the difference": take a term plan for the cover you need, then put the money you save into a fixed deposit or another investment. Compare the endowment's projected maturity value with what the same money would earn in an FD at today's rates before deciding.
How much life cover do you need?
- Start with about 10 times your yearly income.
- Add any loans your family would have to repay, such as a home loan or vehicle loan.
- Add big future costs you want covered, such as children's education.
- Subtract savings and existing cover, including any group cover from your employer.
Choose a term long enough to cover the years your family depends on your income, typically until your youngest child finishes education or your loans are repaid.
Tax deduction on insurance premiums
Nepal's income tax rules let you deduct life insurance premiums of up to Rs 40,000 a year from taxable income, and health insurance premiums of up to Rs 20,000 a year. The two limits are separate. For someone in the 20% tax band, a Rs 40,000 life premium saves about Rs 8,000 in tax. Confirm the current limits with the Inland Revenue Department or your employer's payroll before you file. You can estimate your tax with our income tax calculator.
How to choose an insurer
- Claims record: see how much of its claims each insurer paid on our claims page.
- Disclose your health honestly: undisclosed illness is the most common reason life claims are refused.
- Afford the premium for the full term: surrendering an endowment plan in the early years usually returns much less than you paid.
- Name a nominee and tell them where the policy is kept.
- Check the agent's licence: agents must be licensed by the Nepal Insurance Authority.
Frequently asked questions
Which is better in Nepal, term or endowment insurance?
For protecting your family, term insurance gives far more cover for the same premium. Endowment plans suit people who want forced saving with some cover, but compare their expected return with a fixed deposit first.
How much life insurance premium is tax deductible in Nepal?
Up to Rs 40,000 a year for life insurance premiums and, separately, up to Rs 20,000 a year for health insurance premiums. Confirm the current limits with the Inland Revenue Department before filing.
How much life insurance cover do I need?
A common starting point is about 10 times your yearly income, plus any loans your family would need to repay and big future costs such as education, minus savings and existing cover.
What happens if I stop paying my life insurance premium?
If you stop early, the policy can lapse. An endowment plan that has run long enough may have a surrender or paid-up value, but in the early years it is usually much less than the premiums paid. Term plans have no surrender value.
Byajdar does not sell insurance. We are not licensed by the Nepal Insurance Authority and take no commission from insurers. Buy directly from an insurer or a licensed agent, and see our methodology for how we source figures.