A common rule of thumb is term insurance cover of 10 to 15 times your annual income. A better answer comes from a needs-based calculation: add up outstanding loans, future goals such as children's education, and the money your family would need to replace your income until your youngest dependant is self-sufficient — then subtract the savings and investments you already have. For a 32-year-old earning ₹15 lakh with a home loan and two goals, that typically lands between ₹1.5 crore and ₹2.25 crore.
What term insurance is for
A term plan pays a fixed sum to your nominee if you die during the policy term. It has no maturity value, which is why premiums are much lower than for endowment or money-back plans with similar cover. Its only job is to replace the financial support you provide. If nobody depends on your income and you have no loans that others would have to repay, you may not need it yet.
Method 1: the income multiple rule
Multiply your annual income by 10 to 15. At ₹15 lakh, that means ₹1.5 crore to ₹2.25 crore. Younger people with longer working lives and young children lean towards the higher end; people closer to retirement with substantial savings can use a lower multiple.
Strengths: quick, easy to remember, and usually in the right range for a young family.
Weaknesses: it ignores loans, existing savings, the number and age of dependants, and inflation. Two people earning the same salary — one with a ₹60 lakh home loan and two toddlers, another debt-free with grown children — get the same answer.
Method 2: needs-based calculation
This builds the number from your actual situation:
- Outstanding loans — home, car, personal and education loans your family would need to clear.
- Goals in today's money — children's education and marriage, a parent's care.
- Income replacement — the present value of household expenses until dependants are self-sufficient, adjusted for inflation. Use your family's expenses without you, not your full salary.
- Minus existing assets — investments, EPF, PPF, FDs and any cover you hold personally. Group cover from your employer usually ends when you leave the job, so many people count it cautiously or not at all.
Worked example: age 32, ₹15 lakh income
Consider a 32-year-old with a spouse and a young child. All figures are illustrations.
- Home loan outstanding: ₹40 lakh
- Child's education and other goals in today's money: ₹40 lakh
- Family expenses without the earner: ₹6 lakh a year, needed for 20 years. Assuming 6% inflation and an 8% return on the payout once invested, the present value is about ₹1.01 crore.
- Total needs: about ₹1.81 crore
- Less existing investments and savings: ₹15 lakh
- Cover needed: about ₹1.66 crore, which most people would round up to ₹1.75–2 crore.
Here the 10x rule (₹1.5 crore) would leave a gap, while 15x (₹2.25 crore) would be a little more than needed. The needs-based method gives a figure you can defend. Our Term Insurance calculator runs this calculation with your numbers, and the Inflation calculator shows how quickly future expenses grow.
How long should the policy run?
Cover should last until your financial responsibilities end — usually when the home loan is repaid, children are financially independent, and you have built enough retirement savings that your spouse would be secure. For many people that means cover up to age 60 or 65. Very long terms (to 85 or 99) cost more and are rarely necessary for pure income protection.
When to review your cover
- Marriage or the birth of a child.
- Taking a large loan — for instance, a ₹50 lakh home loan adds directly to what your family would owe. See the Home Loan EMI calculator for the outstanding balance over time.
- A big rise in income or lifestyle.
- As savings grow and loans shrink, you need less cover; some people choose a plan with reducing cover or simply do not renew a second policy.
Practical points before buying
- Disclose your health, smoking and existing policies honestly; non-disclosure is a common reason for claim disputes.
- Choose a nominee and keep the details updated.
- Compare plans on terms and exclusions, not only premium. Riders such as critical illness or accidental death can be useful but add cost.
- Premiums are lower when you are younger and healthier, and usually stay fixed for the full term once bought.
- Under the old regime, term premiums count within the ₹1.5 lakh Section 80C limit; under the new regime there is no deduction. Insurance should be bought for protection, not tax.
This article is educational and does not recommend any insurer or product. Work out a cover figure for your family with the Term Insurance cover calculator.