How Much Term Insurance Cover Do You Need?
Calculate the right coverage amount based on your income, expenses, liabilities, and family's future needs. Don't leave your family under-protected.
Total Coverage = (Annual Income × 10) + Outstanding Loans + Future Goals - Existing Investments
₹1.2 Cr
Income Replacement
(₹12L × 10)
₹40 L
Outstanding Loans
₹50 L
Future Goals
= ₹2.1 Cr
Total Coverage
Key Factors That Determine Your Coverage
Don't just multiply your income by 10. Consider all these factors to get the right coverage amount for your family's complete financial security.
The most common rule is 10-15 times your annual income. This ensures your family can maintain their lifestyle for years even without your income. For example, if you earn ₹12 lakhs annually, consider coverage of ₹1.2-1.8 crores.
More dependents mean higher coverage needs. Consider your spouse, children, and elderly parents. Each dependent adds to the financial responsibility your insurance must cover.
Include all your debts - home loan, car loan, personal loans, credit card dues. Your coverage should be enough to clear all liabilities so your family isn't burdened with debt repayment.
Education costs in India are rising at 10-12% annually. Factor in school fees, college education, and higher studies abroad. A good education today costs ₹25-50 lakhs or more.
Calculate monthly household expenses (rent, utilities, groceries, healthcare) and multiply by 12-15 years. This ensures your family can maintain their standard of living.
Account for inflation at 6-7% annually. What costs ₹1 lakh today will cost ₹3.8 lakhs in 20 years. Build a buffer for future financial goals like children's marriage.
Step-by-Step Coverage Calculation
Calculate Income Replacement Need
Multiply your annual income by 10-15 times. For a ₹15 lakh annual income, this means ₹1.5-2.25 crores. This ensures your family can maintain their lifestyle for a decade or more.
Add All Outstanding Debts
List all your loans - home loan (₹40L), car loan (₹5L), personal loan (₹3L), education loan (₹8L). Total: ₹56 lakhs. Your insurance should clear all these liabilities.
Include Future Financial Goals
Children's education (₹30-50L per child), marriage expenses (₹15-25L), spouse's retirement corpus. These are non-negotiable goals that must be funded.
Account for Inflation
Add 30-40% to your calculated amount as inflation buffer. ₹1 crore today will have the purchasing power of only ₹38 lakhs after 20 years at 5% inflation.
Subtract Existing Assets
Deduct your existing investments - EPF, PPF, mutual funds, FDs, other life insurance. Don't include your primary residence. The result is your ideal coverage amount.
| Component | Amount |
|---|---|
| Annual Income (₹15L × 12) | ₹1,80,00,000 |
| Home Loan Outstanding | ₹45,00,000 |
| Car Loan Outstanding | ₹5,00,000 |
| Child's Education Fund | ₹40,00,000 |
| Inflation Buffer (20%) | ₹54,00,000 |
| Total Coverage Needed | ₹3,24,00,000 |
| Less: Existing Investments | -₹24,00,000 |
| Ideal Term Insurance Coverage | ₹3 Crore |
Common Mistakes to Avoid
- Don't rely solely on employer-provided group insurance - it ends when you leave the job
- Don't ignore inflation - a ₹1 crore cover today won't be enough in 15 years
- Don't count your spouse's income if they might take a career break after your demise
- Review coverage after major life events - marriage, children, promotion
Frequently Asked Questions
Learn More About Term Insurance
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