How to calculate the right life insurance cover for your family’s needs

Representative image

When buying life insurance, most people pick a number that feels big enough without really crunching the math. But under-insuring can leave your family struggling, while over-insuring means paying higher premiums than necessary. The goal is to strike a balance: a sum assured that comfortably supports your family if you aren’t around, without stretching your budget today.

Start with your annual income

A simple rule of thumb is to aim for 10–15 times your annual income. If you earn ₹12 lakh a year, that means a cover of at least ₹1.2–1.8 crore. This gives your family a financial cushion equivalent to many years of your income, which can be invested to generate returns over time. But rules of thumb are only starting points—you’ll want to fine-tune the number.

Factor in liabilities

Add up any debts you currently have: home loans, car loans, or personal loans. If your family would still be responsible for paying them, your cover should be enough to wipe them out immediately. For example, a ₹50 lakh home loan should be fully included in your sum assured, so your family isn’t left with the burden.

Think about future expenses

Beyond everyday living costs, think about big-ticket needs: children’s education, marriage expenses, or caring for elderly parents. These can run into lakhs of rupees and should be included in your calculations. Try to make realistic estimates rather than vague guesses—if your child’s higher education might cost ₹30 lakh, factor that in directly.

Don’t forget inflation

₹1 crore may sound like a lot today, but over 15–20 years, inflation eats into its value. While you can’t predict future costs exactly, padding your cover slightly higher than your initial calculation gives your family a better buffer. For instance, if you calculate ₹1.5 crore as enough, rounding up to ₹2 crore may provide a safer cushion.

Balance it with affordability

At the end of the day, the “right” cover is also one you can afford to maintain. A huge cover is useless if the premiums stretch your budget and you end up letting the policy lapse. Prioritize term plans, which are cheaper than investment-linked products, so you can buy adequate cover without draining your finances.

FAQs

1. Is 1 crore life insurance cover enough today?

It depends on your income, loans, and family needs. For many urban households, ₹1 crore is no longer sufficient. Always calculate based on actual numbers.

2. Should I take multiple smaller policies or one large term plan?

One large term plan is simpler to manage, but some prefer splitting across insurers for flexibility. The key is ensuring the total cover meets your needs.

3. Can I increase my cover later?

Yes, many term plans allow you to enhance cover at milestones like marriage, having children, or buying a house. You can also buy an additional policy if needed.