What Is Term Insurance Cover?
Term insurance cover is the sum assured (death benefit) that your nominee receives if you pass away during the policy term. This lump sum is meant to replace your income so your family can maintain their lifestyle, clear debts, fund children's education, and meet long-term goals even without your earnings. Underinsuring leaves your family financially vulnerable; overinsuring means paying more premium than necessary. This guide helps you calculate the right cover using income replacement, liabilities, future goals, and existing assets.
Key Takeaways
- 10–12× annual income: Base rule for income replacement; adjust up for young children
- Add liabilities: Home loan, personal loan, any debt; family shouldn't inherit burden
- Add future goals: Children's education, marriage; estimate and add to cover
- Subtract existing assets: EPF, savings, employer life cover reduce needed cover
- Use calculator: Term insurance calculator gives personalised recommendation
The 10–12× Annual Income Rule
A widely used rule is to have term cover equal to 10–12 times your annual income. If you earn ₹12 lakh per year, that suggests ₹1.2–1.44 crore cover. The logic: if the family invests the lump sum at 7–8% return, they can draw an amount close to your annual income for 15–20 years without eroding the principal. For younger families with small children, use 15–20× to account for longer dependency. For those near retirement with fewer dependents, 8–10× may suffice. Inflation matters—factor 6% inflation when thinking 20 years ahead.
Consider Existing Liabilities
Outstanding home loans, education loans, personal loans, car loans, and credit card debt must be fully covered. If you have a ₹50 lakh home loan and ₹5 lakh personal loan, add ₹55 lakh to your cover. In your absence, the family would otherwise have to sell the house or struggle with EMI. Term insurance ensures the nominee can clear these liabilities and retain assets. List all debts, get current outstanding amounts, and add them to your coverage calculation.
Account for Future Expenses
Children's education can cost ₹25–50 lakh for undergraduate and ₹50 lakh–1 Cr for higher studies. Marriage expenses vary widely but often run ₹10–25 lakh. Estimate these future costs in today's terms, add inflation (roughly 6–8% per year), and include in your cover. A simple approach: for each child, add ₹25–40 lakh for education and ₹15–25 lakh for marriage. If you have two children, that's ₹80 lakh–1.3 Cr additional. Regular household expenses for 15–20 years are partly covered by the income replacement multiple; adjust if you have high fixed expenses.
Adjust for Existing Savings and Insurance
Subtract existing financial assets and insurance from the gross cover needed. EPF balance, PPF, fixed deposits, mutual funds, and other investments can reduce the required term cover. Employer-provided group life insurance (often 3–5× salary) also counts. If you need ₹1.5 Cr total and have ₹30 lakh in EPF + investments and ₹20 lakh employer cover, you need ₹1 Cr from personal term insurance. Don't over-rely on employer cover—it ends when you leave the job. Your personal term plan should be the foundation.
Worked Example
📊 Cover calculation for Rahul, 35, ₹15 LPA, spouse + 2 children
Common Mistakes
- Underinsuring: Buying ₹50L when you need ₹1.5Cr to save ₹3,000/year premium
- Only income replacement: Ignoring home loan, education; family left short
- Over-relying on employer: Employer cover ends on job change; have personal policy
- Not reviewing: Salary and liabilities change; review cover every 2–3 years
- Hiding health facts: Non-disclosure can void policy; declare everything
Practical Action Plan: Get the Right Cover
- Step 1: Calculate gross cover—10–12× income + liabilities + future goals (education, marriage)
- Step 2: Subtract EPF, investments, employer life cover. Remainder = personal term cover needed
- Step 3: Use Term Insurance Calculator—enter income, dependents, debts. Get personalised recommendation
- Step 4: Compare 3–4 insurers—same cover, similar term. Choose best claim settlement ratio + premium
- Step 5: Review every 2–3 years—salary, loan, family size change. Top up if needed
Use the Term Insurance Calculator
Use our Term Insurance Calculator to get a personalised cover recommendation. Enter your income, liabilities, dependents, and existing assets. The calculator suggests the right sum assured and shows approximate premium for your age and term.
Final Recommendation
The right term insurance cover = income replacement (10–20×) + liabilities + future goals − existing assets and insurance. Use a calculator, review annually, and buy enough—your family's financial security depends on it.
Disclaimer
Cover amounts are indicative. Your needs may vary. Consult an insurance advisor for personalised advice.