How Much Term Cover Do You Need?

The income multiple is a shortcut for the same sum. It is quick and it is rough. Use it to sanity-check the needs number, not to replace it.

How do I calculate how much term insurance I need?

Work it in four steps. Do them on paper before you look at a single quote.

1. Take your annual income and subtract what you spend on yourself. What is left is what the household actually loses.
2. Multiply that by the number of years your family needs it. Until the youngest child finishes education is the usual anchor.
3. Add every outstanding debt. Home loan, car loan, personal loan, card balances. All of it.
4. Subtract what already exists. Liquid savings, employer group cover, an existing policy, your spouse’s income.

The number you land on is the gap. That is your sum assured.

Our human life value calculator runs the second method and our term cover calculator runs the first.

Why is the income multiple usually wrong for you specifically?

Because it does not know anything about you except your salary.

Take two people earning the same. One has a ₹60,00,000 home loan, two young children and a spouse who does not work. The other rents, has no debt, no children and a spouse who earns the same again. A multiple gives them identical cover. Their actual need differs by crores.

Debt is the item the multiple misses most often, and it is the one that hurts fastest. A home loan does not pause because you died. If the cover does not clear it, your family is choosing between the house and everything else within months.

So if you use a multiple at all, use it as a floor and then add the debts on top.

What about inflation and the long tail?

A sum assured is a number fixed today, paid out at an unknown date. Twenty years of inflation between the two is not a rounding error.

There are two honest ways to deal with it. Build the growth in: raise the annual expense figure by an inflation assumption for each year of the dependency period, then total those. Or raise the sum assured periodically as your income rises, and accept that the premium rises with your age.

The second is more common and more expensive. Term premiums are priced on entry age, so the earlier you lock a large sum assured, the cheaper each rupee of cover is for the whole term. Our inflation calculator shows what the erosion looks like.

Count your employer cover, then discount it

Group life cover from an employer is real money and it belongs in the “what already exists” line. It also disappears on your last working day.

That is the practical trap. People size their personal cover against a total that includes group cover, then change jobs, then have a gap. If you are relying on it, treat it as a bonus rather than as part of the base. Our money checklist when switching jobs covers the handover.

How the tax rules affect the decision, and how much they should

Premiums on a life policy qualify under Section 80C, within the overall ₹1,50,000 limit that also has to cover EPF, PPF, ELSS, home loan principal and tuition fees. That limit is available under the old regime only. Under the new regime, which is the default, 80C is not available at all.

So for most people now, the tax deduction is not a reason to buy term cover. That is a good thing. Term insurance should be bought for the sum assured and nothing else. If a deduction is doing the persuading, you are being sold the wrong product.

Read term versus endowment if anyone has offered you a policy that “returns your premium”. It costs several times as much for the same cover.

Before you buy: the details that decide whether it pays

The sum assured is only worth something if the claim is paid. Two things drive that more than anything on the brochure.

Disclose everything. Every medical condition, every tobacco or alcohol habit, every existing policy, your actual income. Non-disclosure is the leading cause of a rejected death claim, and it is entirely in your control. See claim rejection reasons.

Get the nomination right and keep it current. A stale nominee turns a straightforward payout into a documentation fight at the worst possible moment. Our nomination rules guide covers it.

Every life policy also carries a free-look window during which you can return it for a refund. The length is printed on your own policy document. Read it on the day the policy arrives, not later.