Buying term insurance is easy. Knowing how much cover you actually need, however, is the tricky part. A ₹25 lakh plan may feel like a lot today, but will it still protect your family 15 years later when EMIs, school fees, and inflation rise? On the other hand, overshooting with a massive cover may mean premiums that strain your budget.
That’s why experts stress: rules of thumb are helpful, but coverage is deeply personal. The sweet spot lies in calculating smartly, considering your family’s future, and avoiding the traps that leave most Indians underinsured.
TL;DR
- Rule of thumb: coverage = 10–15× annual income, but refine using methods like income replacement and expense replacement.
- Cover should handle debts, lifestyle needs, dependents’ milestones, and retirement security.
- Key factors: age, loans, dependents, existing savings, inflation.
- Mistakes: underinsuring, not updating cover, ignoring inflation.
- India’s protection gap is 83% (Swiss Re 2022) which means most families are underinsured.
- Expert & community wisdom: don’t fixate only on multipliers. Calculate the shortfall between assets and future needs.
What Is Term Insurance Coverage?
Coverage (or sum assured) is the guaranteed amount your nominee receives if you pass away during the policy term. It’s the financial umbrella meant to:
- Replace your income
- Clear debts
- Fund family milestones
- Preserve long-term financial security
Unlike investment plans, term insurance is pure protection. Every rupee is dedicated to risk cover, not savings.
What Does Coverage Actually Help In?
- Replacing Income
Salaries stop, but bills don’t. Coverage ensures rent, groceries, healthcare, and daily living continue without disruption.
- Clearing Liabilities
Home loans, car loans, or personal EMIs don’t vanish with you. A solid cover keeps your family debt-free.
- Funding Education & Milestones
From children’s higher studies to weddings or supporting ageing parents, insurance ensures these plans stay intact.
- Securing Retirement
If your spouse relies on your earnings, part of the cover helps build a retirement nest egg.
- Providing an Emergency Buffer
Beyond planned expenses, coverage acts as a cushion for unexpected medical or lifestyle shocks your family may face.
How to Calculate the Right Coverage
1. Income Multiple Method
Quick thumb rule: cover = 10–15× annual income.
- Example: ₹12 lakh salary → ₹1.2–1.8 crore cover.
- Caveat: less accurate for people close to retirement.
2. Human Life Value (HLV) / Income Replacement
Multiply annual income by years left until retirement.
- Example: Age 30, income ₹10 lakh, retirement at 60 → ₹3 crore (₹10 lakh × 30).
- Adjust for inflation to avoid underestimation.
3. Expense Replacement Method
Add future obligations and subtract assets/savings. The gap is your ideal cover.
- Example:
- Home loan = ₹50 lakh
- Kids’ education = ₹25 lakh
- Lifestyle needs = ₹1.5 crore
- Retirement support = ₹50 lakh
- Total = ₹2.75 crore
- Minus savings = ₹50 lakh
- Required cover = ₹2.25 crore
Factors to Consider Before Finalising Cover
- Age & Career Stage
Younger = longer responsibility horizon. Older = shorter horizon but often higher obligations.
- Dependents
Spouse, kids, and ageing parents all increase coverage needs.
- Liabilities
Ensure cover at least matches outstanding loan balances.
- Existing Assets
If you have investments, rental income, or employer benefits, coverage can be reduced.
- Inflation
₹1 crore today may only be worth ₹40–50 lakh in 20 years. Always account for rising costs.
- Policy Duration
Ideally, align it with your earning years or until major liabilities are cleared.
- Insurer Caps
Insurers typically allow coverage up to 15–20× annual income, subject to underwriting. Don’t plan beyond what you can qualify for.
Common Mistakes People Make
Mistake 1: Underinsuring
Buying a ₹25–30 lakh plan when your family’s needs are ₹1 crore+ is like carrying an umbrella in a cyclone.
Mistake 2: Not Reviewing Cover
Marriage, children, or home loans should trigger a review. Many never update their cover.
Mistake 3: Ignoring Inflation
A ₹1 crore cover today shrinks drastically over 20–30 years. Index upwards.
Mistake 4: Overinsuring Without Budgeting
Some aim for ₹3 crore+ without checking affordability. Insurers may even reject excessive cover if income doesn’t justify it.
Mistake 5: Mixing Insurance with Investment
Endowment plans offer low cover at high cost. Stick to term insurance for pure protection.
Mistake 6: Forgetting Step-Ups
Many don’t use increasing cover or top-up options, which could help match rising needs affordably.
Real-World Wisdom
Expert Voices
“Insufficient coverage can be similar to no coverage at all. Life insurance replaces your paycheck—food on the table, bills paid, and childcare needs covered.”
— Michael Helveston, Founder, Whitford Financial Planning (via Investopedia)
Community Voices
“Ideally enough to: pay off your mortgage, cover life expenses for the survivor and kids until they’re independent. Subtract assets, insure the shortfall.”
— Reddit user, r/financialindependence“Generally 10–12× salary… don’t count employer-provided life insurance, treat it as a bonus.”
— Reddit user, r/personalfinance
Quick Comparison Table
| Method | Formula | Best For |
| Income Multiple | Annual income × 10–15 | Quick thumb rule |
| HLV / Income Replacement | Salary × working years left | Income-focused calculation |
| Expense Replacement | Needs – assets/savings | Goal-focused personalization |
FAQs
Is ₹1 crore cover enough?
Depends on income, dependents, and debts. In metros, often not sufficient.
Should I count my employer life cover?
No. It ends if you change jobs. Treat it as extra, not core.
How often should I review coverage?
Every 5 years or after major life events—marriage, kids, loans.
Should I go for the maximum cover insurers allow?
Not blindly. Balance need with affordability. Insurer caps also apply.
How do I beat inflation?
Opt for step-up covers or review and top up every few years.
Conclusion
The right term cover isn’t a random figure. It’s the amount that keeps your family’s life on track—paying debts, funding milestones, and sustaining lifestyle in your absence.
Start with smart methods (income multiple, HLV, or expense replacement), adjust for inflation, review regularly, and top up as life changes. Because term insurance isn’t about what looks big on paper—it’s about what actually keeps your family secure.
