Understanding Term Insurance
Term insurance provides pure life coverage for a specific period (typically 20 to 40 years) at the most affordable premiums. Unlike whole life or endowment plans, it has no savings component: you pay for protection only. If you die during the term, your nominee receives the sum assured as a lump sum. If you survive, the policy ends with no maturity payout. This makes term insurance the most cost-effective way to secure your family's financial future. A ₹1 crore cover for 30 years can cost as little as ₹10,000–15,000 per year for a 30-year-old, far less than any other form of life insurance. This guide explains how to calculate the right coverage and use our Term Insurance Calculator for a personalised recommendation.
Key Takeaways
- 10–12× annual income: Base rule; 15–20× if young children
- Add liabilities: Home loan, personal loan, any debt
- Add future goals: Children's education, marriage
- Subtract assets: EPF, savings, employer life cover
- Use calculator: Get personalised recommendation in minutes
Coverage Calculation Factors
- Income replacement: 10–15× annual income (20× if young children)
- Outstanding loans: Home loan, education loan, personal loan, car loan
- Children's education: Estimate cost in today's terms; add inflation
- Children's marriage: ₹15–25 lakh per child (varies by preference)
- Daily living expenses: Partially covered by income multiple; adjust for high expenses
- Emergency fund: 6–12 months expenses; can be part of cover or separate
- Minus: Existing savings, EPF, PPF, investments, employer life cover
Worked Example
📊 Rahul, 35, ₹15 LPA, spouse + 2 children (8 and 5)
Why 10–12× Income?
The logic: if your family invests the lump sum at 7–8% return, they can withdraw an amount close to your annual income each year for 15–20 years without eroding the principal. For example, ₹1.2 Cr invested at 8% can generate ~₹9.6L per year. For a ₹12L earner, that replaces about 80% of income. Use 15–20× if you have very young children or want to account for inflation over a longer dependency period. The multiplier is a starting point; adjust based on your specific liabilities and goals.
Common Mistakes to Avoid
- Underinsuring: Buying ₹50L when you need ₹1.5Cr to save ₹3,000/year premium
- Only income, no liabilities: Home loan alone can be ₹50L+; add it
- Relying only on employer: Employer cover ends on job change; have personal policy
- Not reviewing: Salary and debts change; review cover every 2–3 years
- Hiding health facts: Non-disclosure can void the policy; declare everything
Using Our Term Insurance Calculator
Our Term Insurance Calculator asks for your income, outstanding loans, number of dependents, future goals (education, marriage), and existing assets. It applies the coverage formula and suggests the right sum assured. You can also see approximate premium for the recommended cover. Use it before buying or when reviewing your existing policy.
When to Increase Coverage
Review and increase coverage when you get married, have a child, take a home loan, or get a significant salary hike. Many insurers allow increasing cover at defined life events without fresh medicals. Don't wait; every year of delay means higher premium for the same cover. Top up your policy or buy an additional term plan if your needs have grown beyond your current cover.
Disclaimer
Coverage amounts are indicative. Your needs may vary. Consult an insurance advisor for personalised advice. Premium depends on age, health, and insurer.