Here’s a story you might recognise. You joined a startup, accepted a salary a bit lower than the big firms were offering, and got a hefty batch of stock options to make up for it. Lovely. Except rent is due on the 1st, the car loan EMI doesn’t care about your vesting schedule, and those shares can’t buy so much as a cup of chai until the company lists or gets acquired.
So life insurance slides down the list. “Later,” you tell yourself, “once the employee stock ownership plans (ESOPs) pay off.” Trouble is, your spouse or your parents need that safety net today, and it costs a lot less than you’d guess.
Why Does Cover Feel So Far Away When You’re Paid in Options?
Because your money is stuck. Vesting takes about four years in most places, often with a one-year cliff. Then, to actually own anything, you may have to stump up the exercise price yourself. And if the company isn’t listed, forget selling a few shares to cover a bill. Nobody’s buying. So you look rich in a spreadsheet and feel broke on the 28th.
Then there’s the imagined premium. Big number on the cover, surely a big number on the bill? Not really. Ask for a real quote and it’s often far smaller than the one rattling around in your head.
What Will a Cover This Big Actually Cost You?
Pure protection pays out only if you die during the policy period. There’s no maturity payout in the mix. That’s why it’s cheap. Take a healthy non-smoker around thirty: quotes for ₹1 crore life insurance often land near ₹12,000 to ₹20,000 a year. Of course it moves with your age, your health, your job and how long you want cover. Insurers price differently too, so get a handful of quotes before trusting any range, this one included.
Now set it beside what your family would face without you. A home loan still running. Bills arriving as usual. Maybe parents who rely on your income. Against all that, ₹1 crore isn’t an extravagant number.
ESOPs Are a Bonus, Not a Budget
Don’t plan the premium around them. Companies fail to list, valuations slide, people leave before their options vest. Think of the stock as a pleasant surprise if it turns up.
Tax is another thing people overlook. At exercise, the gap between the fair market value and your exercise price gets taxed as a perquisite, at your slab rate. You haven’t sold anything, mind. The tax arrives anyway. Startups recognised by DPIIT offer a break: eligible employees can push that tax back by up to 48 months after the relevant assessment year ends, or till they sell or leave, whichever happens first. Even so, a tax bill can land while all your wealth is still tied up in shares. One more reason to pay the premium from salary.
Treat the Premium as Rent
Choose a number you won’t resent paying in year seven. A lapsed policy helps nobody, and a few missed payments can end it. Paying yearly is often a touch cheaper than monthly, and you can’t forget a debit in a bad month. If part of your pay is variable, work out the premium from the fixed part only.
Why Not Just Wait for the IPO?
Because every birthday nudges the price up. Wait a year or two and you lock in a higher premium for the whole term. Health can change as well. A new diagnosis might hike the cost or, in some cases, get your application declined. And if the IPO does happen, that money is free for things you actually want, instead of being spent on plugging a hole.
How to Trim the Premium
Your term plan doesn’t have to run forever. Cover until about 60 is plenty for most people, so don’t just tick the longest option. Tell the insurer everything, even the occasional cigarette or that hospital stay a few years back. If a claim comes up and something was hidden, it can be turned down. Look up the insurer’s claim settlement ratio. Read the exclusions too, boring as that is. Riders add cost, so take only the ones you’d really use.
On tax, under the old regime the premium counts towards the ₹1.5 lakh limit under Section 123 of the Income-tax Act, 2025 (the successor to Section 80C), and what your nominee receives is generally tax-free under Section 11, read with Schedule II (the successor to Section 10(10D)). The new regime doesn’t offer the deduction.
Don’t let that put you off, though. Protection comes first; the tax saving is just a side benefit.
Mistakes People Make with ESOP-heavy Pay
Going too small is the big one. ₹25 lakh looks cheap, but it might carry your family for a year or so. A rough rule is ten to fifteen times your yearly income, and more if you’ve got loans. Earn ₹10 lakh a year? Ten times that is ₹1 crore, which is where this whole conversation started.
Another slip is buying an endowment policy because it feels like saving. Premiums balloon and the cover shrinks. Then there’s the nominee. Plenty of people never update it after a wedding or a baby, and that’s when the delays begin.
Don’t Wait for the Payday
Maybe your options will be worth a fortune. Maybe they won’t, and nobody at your company can tell you which. What you can do is sort the safety net this month. Ask for quotes, choose a premium that fits your fixed pay, and fill in the forms truthfully. The ESOPs can sort themselves out after that.
