If you’re under-insured, your family pays. If you’re over-insured, you do. Getting the cover right matters more than getting it cheap.
Once a quarter, someone asks me a version of this question over a cup of chai in our Dadar office: “Nikhil, how much life insurance do I actually need? My friend bought ₹1 Cr, my brother-in-law’s advisor recommended ₹2 Cr, and an online calculator suggested ₹3.5 Cr. Which one is right?”
The honest answer is: none of them, until we sit down and do the math for your situation. But there is a framework we use, and it’s worth understanding.
The standard rule of thumb (and why it’s incomplete)
The most-quoted shortcut is 10 to 15 times your annual income. For someone earning ₹20 lakhs a year, that’s a ₹2-3 Cr term cover.
This isn’t wrong — it’s a reasonable starting point. But it ignores three things that matter:
- Your liabilities. A home loan, education loans, or business debt should be added on top.
- Your future goals. Funding a child’s education in 2034 or supporting a spouse’s retirement until 2055 needs separate provisioning.
- Your existing cover. Group life insurance from your employer, an old endowment policy, accumulated savings — all of these reduce the gap to be filled.
The needs-analysis approach
What we actually do is a needs-analysis. It looks like this:
- Income replacement need: Your annual income × number of years your family will need it (typically until your youngest child is 25, or your spouse turns 65, whichever is longer).
- + outstanding debts: Home loan balance, personal loans, business loans, credit card debt.
- + goal funding: Children’s higher education, marriage, spouse’s retirement income, parents’ medical corpus.
- − existing cover: Employer group life, old policies, EPF, accumulated mutual fund corpus, liquid assets.
The result is the actual cover gap to be filled with new term insurance.
A real example
Here’s a (lightly disguised) calculation for a client last year:
Mr. R, age 38, software engineer earning ₹35 LPA. Wife (homemaker), two daughters aged 8 and 5. Home loan outstanding ₹85 lakhs. Wants the family lifestyle intact and both daughters’ education funded.
- Income replacement: ₹35 L × 22 years (until youngest is 27) = ₹7.7 Cr (in current money)
- + Home loan: ₹85 L
- + Daughters’ education corpus: ₹60 L each = ₹1.2 Cr
- + Wife’s retirement support (₹5 L/yr × 30 yrs): ₹1.5 Cr
- − Existing employer group life: ₹50 L
- − Old endowment policy: ₹15 L
- − Mutual fund corpus: ₹35 L
Cover gap: roughly ₹10 Cr. Much higher than the ₹2 Cr he had been planning to buy from an online aggregator.
The flip side: don’t over-insure either
Over-insurance is a real cost. A ₹10 Cr cover for someone whose actual need is ₹3 Cr means thousands of extra rupees in annual premium for life — money that could have funded mutual fund SIPs instead.
The discipline cuts both ways. We’ve talked clients down from policies they didn’t need just as often as we’ve talked them up.
One thing the calculators miss
Life insurance need declines over time. By the time you’re 60, your kids are independent, your home loan is paid, your investments have compounded — the cover gap has shrunk significantly. We design term policies in tiers (a 30-year cover + a 20-year cover, for instance) so you’re not paying for protection you no longer need in your 60s.
That kind of structuring is what an algorithm can’t really do for you. It’s also why a 30-minute needs analysis is worth more than three hours on comparison websites.
If you’d like us to work out the number for your situation, just call or send a message. There’s no fee for the analysis.