Life insurance exists for one reason: to replace your income if you are no longer there to earn it. The right amount depends on what your family would need, not on what a policy happens to offer.
Start with the rule of thumb
A common starting point is cover of 10 to 15 times your annual income. For someone earning ₹10 lakh a year, that means ₹1 crore to ₹1.5 crore. It is quick, but it ignores loans, savings and the age of your children.
A better way: add up what your family would need
- Income replacement: the income your family would lose, less what you spend on yourself, until you would have retired.
- Loans: your home loan, car loan and any other debts.
- Big goals: children's education and marriage, if you want them funded regardless.
- Minus what you already have: existing life cover, savings and investments.
This is the Human Life Value approach. Our life cover calculator does the maths in a minute.
Term or endowment?
A term plan gives the most cover for the least premium because it pays only on death. Endowment and money-back plans also return money if you survive, so the same premium buys far less cover.
Common mistakes
- Buying cover based only on the premium you can spare.
- Forgetting to include loans.
- Relying only on employer group cover, which ends when you leave the job.
- Not updating nominees after marriage or the birth of a child.
This article is for general education only and is not personal financial, tax or legal advice.