Raj is 35, works as a marketing manager in Pune, and earns ₹12 lakh a year. He and his wife Seema have two young kids (ages 5 and 8), a home loan of ₹40 lakh, and dreams of funding their children’s higher education and maintaining their current standard of living even if Raj were no longer around. One evening over dinner, Raj asks: “How much term insurance cover do we really need?”
The question is as relevant for families like Raj’s across India as it is deeply personal. Let’s use data and simple formulas to figure out how to answer it for Indian families.
Why the question matters
When the earning parent is no longer around, the family faces multiple financial shocks: loss of income, ongoing obligations (loan EMIs, household expenses), future goals (children’s education, marriage), inflation, and more. A term insurance plan is meant to provide a lump-sum death benefit that helps cover these shocks.
But how much cover is enough? Too little means the family is under-protected; too much might mean unnecessarily high premiums (though in term plans, the premium spread over many years may not be terribly high). Finding that “just right” amount is what we aim for.
The Simple Formula(s)
Insurers and financial-advisory sources in India typically suggest one of three broad methods to arrive at a ball-park figure:
Income-multiple (thumb rule)
Many Indian insurers suggest your cover should be 10–15 times your annual income.
Some go further – suggesting 15–20× or even up to 25× your annual income, especially if you are younger, have many years of earning ahead of you. HDFC
For example, if you earn ₹10 lakh/year, a cover of ₹1 crore (10×) to ₹2.5 crore (25×) is often cited.
2. Income-replacement / Human Life Value method
This method estimates how many years of earnings the family would need to replace, plus consider inflation, dependents’ needs, etc. For example: Annual income × years to retirement.
Example: Earn ₹10 lakh/year, 30 years to retirement → 10×30 = ₹3crore cover.
3. Detailed needs-based method
This method adds up your obligations (loans, EMIs), future goals (education, marriage), current standard of living, subtracts your assets/investments, and arrives at required cover.
More accurate but also more complex; good to refine your ball-park.
A Simple Formula for Indian Families
Let’s craft one easy-to-use formula, then apply it to Rajesh’s situation.
Formula:
Required Cover≈(Annual Income×Income Multiplier)+Outstanding Loans+Future Goals Cost−Existing Protections / Assets
Where:
Income Multiplier could be 15× (for mid-30s age, young kids, many earning years ahead)
Future Goals Cost = estimate of children’s higher education + marriage + other big spends
Existing Protections = savings/investments + existing insurance cover
Why this formula works
Annual Income × Multiplier handles income replacement for many years ahead.
Adding Outstanding Loans ensures debts don’t become burden on family.
Adding Future Goals Cost covers things like education, which typical income multiples may not fully anticipate.
Subtracting Existing Protections avoids double-counting what you already have.
Applying It: Raj’s Case
Annual Income = ₹12 lakh
Choose Multiplier = 15 (reasonable given age 35, kids 5 & 8) → Income Replacement = 12 × 15 = ₹1.8 crore
Outstanding Loan = ₹40 lakh (₹0.4 crore)
Future Goals Cost (say): children’s higher education & marriage = estimate ₹50 lakh (₹0.5 crore)
Existing Assets/Protections: assume savings & other life cover = ₹30 lakh (₹0.3 crore)
So Required Cover ≈ ₹1.8 crore + ₹0.4 crore + ₹0.5 crore – ₹0.3 crore = ₹2.4 crore
Therefore: Raj should aim for a term insurance cover of about ₹2.4 crore (or round to ₹2.5 crore) to be reasonably secure.
If he opted for a simpler thumb rule of 20× income = ₹12 lakh × 20 = ₹2.4 crore, it aligns nicely. Note how the multiple method and detailed formula converge in this case.
Tips & Practical Considerations
Start early: Buying a term plan at younger age = lower premiums for same cover.
Review regularly: As salary grows, family size changes, debts reduce, you may need to increase or reduce your cover.
Loan commitments matter: Home loans, car loans, education loans all add to obligations.
Target until retirement or kids become independent: Cover duration should match until you don’t have large dependents left.
Factor in inflation and education cost growth: A cost today may be 2-3× in 10-15 years.
Use online calculators: Many insurers provide term cover calculators with inputs like age, income, loan, dependents.
Don’t rely solely on “10× income”: While 10× is a minimum, many advisors in India suggest 15–20× or higher based on your responsibilities.
Existing assets & cover matter: If you already have significant savings, fixed deposits, children’s fund etc., you may need less additional cover.
Health & lifestyle count: Premiums depend on age, health, smoking habit. Earlier is cheaper.
Wrapping up: The “Enough” is customised
There’s no universal number valid for all families. But, using the simple formula (income × multiplier + loans + future goals - assets) gives you a strong starting point.
For Indian families like Raj’s: mid-30s age, young children, home loan, income ~₹12 lakh, the ball-park cover of ~₹2.4 crore makes sense.
If you earn more, have more dependents, bigger loans or goals (say education abroad), you might lean toward 20–25× your income. If you are older, closer to retirement, fewer dependents, then even 10–12× might suffice. The key: think purposefully, review periodically, and buy early.
