Add up what your family would actually need if your income stopped permanently — living costs, the outstanding loan, the children's education — then subtract what they would already have. The gap is your cover.
Do it properly and the number is usually far larger than people expect. For the family below it comes to ₹2 crore, where the popular "ten times your income" rule would have said ₹1.2 crore.
Term insurance is the one financial product that is genuinely simple: you pay a premium, and if you die during the term your family receives a fixed sum. No maturity value, no investment component, no returns. That simplicity is exactly why it is the cheapest way to buy a large amount of protection — and why it is sold least enthusiastically.
Who actually needs it
Anyone whose income other people depend on. That is the whole test.
In the health insurance session we made the case that at twenty-five with nobody depending on you, life cover protects nobody. This stage is where that flips. A spouse who has left work, a child, parents you support, a home loan somebody would inherit the obligation of — any one of those makes term cover urgent rather than optional.
Why "ten times your income" fails
It is a reasonable starting guess and a poor answer, because it ignores the two things that vary most between families: what you owe, and how long your dependants will depend on you.
A thirty-three-year-old with a two-year-old child and a ₹45 lakh loan needs a very different sum from a forty-eight-year-old with a paid-off house and children about to start earning. Same income, entirely different obligation.
The needs calculation
Take a family: one earner aged 33 bringing home ₹1,00,000 a month, a spouse not currently earning, a two-year-old child, and a home loan with ₹45,00,000 outstanding.
Income replacement. The family needs about ₹50,000 a month to run, in today's money, for roughly 25 years until the child is independent and the spouse reaches retirement. That amount must rise with inflation each year. Assuming the money is invested at around 8 per cent while prices rise at around 6 per cent, the lump sum required today is about ₹1,20,95,000.
Liabilities. The home loan, ₹45,00,000, so the family keeps the house rather than selling it in a hurry.
Goals already committed to. The child's higher education, budgeted at ₹40,00,000.
| Needs | |
|---|---|
| Income replacement — ₹50,000/month for 25 years, inflation-linked | ₹1,20,95,000 |
| Outstanding home loan | ₹45,00,000 |
| Child's education | ₹40,00,000 |
| Total need | ₹2,05,95,000 |
| Already available | |
| Provident fund balance | ₹8,00,000 |
| Investments | ₹6,00,000 |
| Total assets | ₹14,00,000 |
| Term cover required | ₹1,91,95,000 |
The "ten times income" rule would have produced ₹1,20,00,000 — short by about ₹72 lakh, almost exactly the size of the loan plus the education goal it ignores.
Do not subtract your employer's cover
Group life cover from your employer is real while it lasts, and it lasts exactly as long as the job. Deducting it from your requirement means being underinsured during every gap between jobs, and after retirement.
Treat it as a bonus sitting on top of adequate personal cover, never as part of the calculation.
How long the cover should run
Not "as long as possible". Cover until your dependants stop depending on you — which usually means until the loan is cleared and the youngest child is earning. For this family, roughly 25 years takes the earner to 58 and the child well past education.
Buying cover to age 99 sounds thorough and mostly raises the premium for a period when nobody needs the money. The purpose is to protect a working life, not to leave an inheritance.
One practical exception: as the loan reduces and your investments grow, your requirement genuinely falls. Some people take two policies with different end dates rather than one large one, so cover steps down as the need does.
Why term and not the alternatives
You will be offered policies that combine insurance with returns — endowment plans, money-back plans, unit-linked plans. They are sold on the argument that with term insurance, "you get nothing back".
That is true, and it is the point. Because a term policy pays out only on death, the same premium buys several times more cover than any bundled product. A family that needs ₹2 crore of protection cannot get there through an endowment policy at any premium they could afford.
Keep the two jobs separate: buy protection as term insurance, and invest separately where you can see what you are earning and can stop without surrendering a policy at a loss.
The reason claims get rejected
Almost always, non-disclosure. Tobacco use, alcohol consumption, existing medical conditions, family medical history, and your actual income — all of it is checked at claim time, when your family is least able to argue.
Declare everything, honestly. A smoker who declares it pays a higher premium and is covered. A smoker who does not may leave a family with a rejected claim and no cover at all. Also insist on the medical tests rather than avoiding them — a policy issued after full medical underwriting is much harder to contest later.
One further point worth knowing, particularly for anyone with business borrowings: a policy taken under the Married Women's Property Act creates a trust in favour of your wife and children, and the proceeds sit outside your estate and beyond the reach of creditors. It must be structured at the time of purchase — it cannot be added afterwards.
The common mistake
Buying a small policy with returns attached, and believing the family is protected. A ₹15 lakh endowment plan against a ₹45 lakh home loan is not insurance, it is a savings scheme with a sticker on it. The test is simple: would this sum actually keep my family in this house and this school?
The second mistake is buying cover once and never revisiting it. Term needs rise with a second child or a larger loan, and fall as the loan clears and assets build. Review it at every major life event.
Jargon buster
- Term insurance
- Pure life cover for a fixed period. Pays only on death, which is why it is inexpensive per rupee of cover.
- Sum assured
- The amount your family receives.
- Policy term
- How long the cover runs. Should match how long anyone depends on your income.
- Rider
- An optional add-on, such as accidental death or critical illness cover.
- Underwriting
- The insurer's assessment of your health and circumstances before issuing the policy.
- Non-disclosure
- Failing to reveal something material on the application. The leading cause of rejected claims.
- MWP Act policy
- A policy structured so proceeds go to your wife and children in trust, outside your estate and protected from creditors.