How Much Life Insurance Cover Is Enough? Term Insurance Formula Explained
Most people in India buy term insurance without really knowing how much coverage they need.
Some choose ₹10–20 lakh because the premium is low.
Some trust whatever amount the agent suggests.
But here is the truth:
👉 If the insurance amount is too low, your family will still face financial difficulty after you're gone.
So let’s understand — how much life cover is actually enough?
🧠 Why Choosing the Right Amount Matters
Term insurance is not for you — it’s for your family.
Even if you are not there tomorrow, your family will still need money for:
-
Monthly expenses
-
School fees
-
Rent or EMI
-
Medical costs
-
Future goals
If the insurance coverage is small, it may last only a few months.
📌 The Simple Rule to Decide Your Life Cover
You don’t need complicated calculations.
Just use this formula:
👉 Life Cover = (Annual Income × 15 to 20) + Loans − Existing Investments
This ensures:
✔ Your income is replaced
✔ Loans are cleared
✔ Your family can continue their current lifestyle
📍 Step-by-Step Example
Suppose:
-
Annual income = ₹5,00,000
-
Home loan balance = ₹12,00,000
-
Investments (PPF + Mutual Funds) = ₹3,00,000
Calculation:
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₹5,00,000 × 15 = ₹75,00,000
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₹75,00,000 + ₹12,00,000 = ₹87,00,000
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₹87,00,000 − ₹3,00,000 = ₹84,00,000
👉 So, a person earning ₹5 lakh per year should ideally buy a ₹1 crore term plan.
👨👩👧 Coverage Based on Life Stage
| Life Stage | Ideal Insurance Amount |
|---|---|
| Single | 5–10× annual income |
| Married | 10–15× annual income |
| Married + children | 15–20× annual income |
| Loans + dependents | 20× income + loan value |
⚠️ Common Mistakes to Avoid
❌ Buying low cover because premium is small
❌ Relying only on employer insurance
❌ Not increasing cover after major life events
❌ Choosing random numbers without calculation
⏳ When Should You Increase Your Cover?
Review your life insurance if:
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Your salary has increased
-
You took a new loan (home/car)
-
You got married
-
You had a child
Life changes — and your insurance should grow with it.
🟢 Final Summary
Use this table as a quick reference:
| Annual Income | Recommended Term Insurance Cover |
|---|---|
| ₹3–5 lakh | ₹50 lakh to ₹1 crore |
| ₹6–10 lakh | ₹1–₹2 crore |
| ₹10 lakh+ | ₹2 crore or more |
💡 Final Thoughts
Term insurance is not about earning returns.
✔ It is about protection
✔ It is about responsibility
✔ It is about giving your family peace of mind
Choosing the right coverage ensures your family is safe — even if life takes an unexpected turn.
🔗 Read Next:
👉 How to Choose the Right Term Insurance Plan (Simple Guide)
👉 Insurance Is for Protection, Not Returns — Why Every Family Must Have a Term Plan
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