How Much Life Insurance Cover Do You Actually Need in India?
The income-replacement method, the HLV method, and a simple formula to decide your term insurance cover.
The standard rule of thumb — '10 times your annual income' — works for most salaried Indians but understates the right cover if you have a home loan, young children, or non-working dependants. Here are three methods, ranked from quickest to most accurate.
Method 1: Income Replacement (Fastest)
Cover = annual post-tax income × 15 to 20. For someone earning ₹15 lakh a year post-tax, that is ₹2.25 to ₹3 crore. Buy a 30-year term plan from a reputed insurer (claim settlement ratio > 98%).
Method 2: Needs-Based
Sum these up. This is the cover that genuinely keeps your family's lifestyle intact.
- Outstanding home loan + other loans
- Children's education corpus (₹50 lakh-₹1 cr per child today)
- 20 years of household expenses for spouse
- Existing investments and EPF subtracted
Method 3: Human Life Value (HLV)
Present value of all future earnings till retirement, discounted at ~6%. Most accurate but math-heavy — most term plan calculators on insurer websites use this method internally.
Plan the corpus your family would need: Retirement Planner → https://calculatordesk.in/retirement-planner
Frequently Asked Questions
Is term insurance enough or should I also buy endowment?
Term insurance is enough for almost everyone. Endowment plans bundle insurance with poor 4-6% returns. Buy term for protection, invest separately in PPF/ELSS/equity for returns.
Should I increase cover after marriage or kids?
Yes. The cleanest approach is to buy a base cover early when premiums are low, then add a second term plan when your responsibilities increase. Two ₹1 cr plans cost almost the same as one ₹2 cr plan at older age.
Are claim payouts taxable?
No. Death benefit under a life insurance policy is fully tax-free under Section 10(10D), provided premium is below 10% of sum assured.