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Last Updated : Oct 05, 2016 04:22 PM IST | Source: Moneycontrol.com

How much life insurance cover you must buy?

Many individuals take 10-15 times of their annual income as their life insurance cover. Even though this can be the starting point to take the insurance cover but this is not the right way of calculating the correct life insurance requirement.


Amish Aggarwal
Boon Insurance

We generally do not think much about death. Even rare is a situation when one thinks about his family living without him. These situations are difficult to imagine but the fact is that untimely death is a possibility. Therefore you need to be prepared in advance for the financial well-being of your family.

As long as there are people who are financially dependent upon you or you have some liabilities to be paid off, you definitely require life insurance cover. There are many ways of taking a life insurance cover but the best and the cheapest way of securing your life is term insurance plan.

In term insurance the premium paid by you is only to secure your life, therefore in case of your early demise, your nominee will get the full insurance cover amount.
By now, you must be wondering that how much is the ideal life insurance cover you should buy?

Every individual’s requirement for life insurance cover is different depending upon the extent of liability and dependency on him. The more dependents you have and the more liabilities need to be paid off in your absence, the more life insurance cover you will require.

Many individuals take 10-15 times of their annual income as their life insurance cover. Even though this can be the starting point to take the insurance cover but this is not the right way of calculating the correct life insurance requirement.

You need to consider following points in order to calculate Correct Life Insurance Requirement:
•    Monthly expenses on dependents
•    Current age of spouse
•    Life expectancy of spouse
•    Outstanding loans
•    Existing life insurance cover
•    Total assets excluding value of your residential house

All the above points will be incorporated in the below mentioned formula and you will get your exact life insurance requirement:


While considering inflation, you should be conservative to account for inflation of at least 10% p.a. Life expectancy of spouse should be based upon the family’s life history and may be a little bit higher than the family’s average to be on the safer side. If you are finding it difficult to calculate your life insurance requirement on your own, do consider using online calculators online.

It is always better to know your exact life insurance requirement so that you are not over or under insured. You already know that best way to fulfil your life insurance requirement is through a term plan but don’t forget to compare term insurance plans on the basis of premium, features and claim settlement ratio of the insurance company before making your final purchase decision.

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First Published on Oct 5, 2016 04:22 pm
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