How Much Term Insurance Do I Need?
  • Understand the Term Insurance Coverage
  • Factors to Estimate life Cover
  • Methods to Calculate Cover
How Much Term Insurance Do I Need?
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Calculate Right Term Insurance Cover

When buying a term insurance plan, one of the most important factors while deciding the right plan is choosing an adequate life cover. While term insurance coverage may vary from person to person based on their income, financial goals, family needs, and lifestyle it is important to understand how you can decide on the accurate coverage for you.

Usually the thumb rule is to opt for coverage which is 15 to 20 times of your annual income. Please note that term cover is not to be chosen based on the present income only; it may depend on the family's future needs, your liabilities, loans, inflation and the number of dependents that you have.

How Does Term Insurance Coverage Work?

Let's take a look at an example to understand how term insurance coverage works for a policyholder:

For instance,

  • Bhanu is a 30 year old man currently earning a salary of ₹ 10 lakhs per annum.
  • In order to make sure that his family will be taken care of when he's not around, he considers a life cover that is 15 times his current salary, i.e., ₹ 1.5 crores.
  • If Bhanu dies during the policy tenure, their beneficiaries will receive a life cover of ₹ 1.5 crore.
  • The death benefit payout will be tax-free, subject to Section 10(10D) of the Income Tax Act, 1961.
  • In case Bhanu added any optional rider in his base plan, like an accidental death benefit rider, then their family will get an extra payout too.
Cover your Family by term insurance Cover your Family by term insurance

Factors to Consider While Calculation your Term Insurance Cover

Take into consideration the future needs and goals that you've decided for your family to calculate how much term insurance you need. It includes the standard of living, kids' higher education, building a house, loans and debts, etc.

Here, we've listed all the important factors to consider while calculating the term insurance coverage:

  1. Estimate Your Monthly Expenses

    Take into account all your expenses while calculating the adequate life cover. For example, Bhanu's monthly expenses are Rs. 40,000, which is estimated to be around Rs. 4,80,000 of the annual income. It is advisable to get coverage of up to 15 to 20 times of the annual income so that the monthly expenses are met seamlessly.

  2. Analyze Your Financial Liabilities

    Are you scared to pass your liabilities, such as home loans, car loans, business-related loans, etc., on to your family? In that case, you should choose the coverage which can be used to pay off these debts or consider buying a decreasing term plan which will pay your loan using the premiums.

  3. Consider your Family's Future Goals

    The main objective of buying a term plan is to help your family maintain their living standard when you're not around. Having a backup is necessary as it may help your family to build your unfulfilled dreams, such as building a house, caring for aging parents, paying for the wedding of your children or their higher education.

  4. Term Insurance Policy Period

    Every individual passes through a different stage of life when the needs and responsibilities change. For instance, at the age of 30, Bhanu is unmarried with few responsibilities, so the policy tenure till the age of 60 years will be enough. But at the age of 40, Bhanu gets married and has one kid, and then he'll need a term plan with coverage for your entire life till 99/100 years of age.

  5. Age

    Age is an important factor in estimating the right term insurance plan coverage for your family. For a young policyholder, a term life cover of up to 1 crore will be adequate to fulfill their financial needs such as home loans, aging parents' care, car loans, Etc. Meanwhile, for an older policyholder who is married with kids, a 1 crore term life cover may not be enough to fulfill their financial requirements. It is always advisable to buy a term plan at an early stage of life because the premium is cheaper when you're younger and healthier.

Factors to Consider While Calculation your Term Insurance Cover

Take into consideration the future needs and goals that you've decided for your family to calculate how much term insurance you need. It includes the standard of living, kids' higher education, building a house, loans and debts, etc.

Here, we've listed all the important factors to consider while calculating the term insurance coverage:

  • Human Life Value Under human life value, you have to consider your income, expenses, future responsibilities, and future goals to determine the insurance need. It is an ideal way to calculate the right term life coverage, and many insurance providers have an HLV calculator on their websites. You can use a human life value calculator
  • Income Replacement Under the Income replacement method, the need for term insurance cover is to replace the lost earnings of the earning member. However, the simplest way to estimate your income replacement value is: Insurance cover = current annual income x years left to retirement.
  • Underwriter's Rule For estimating the minimum cover you require, you can use the thumb rule in which a sum assured that is 15-20 times your annual income. In that case, when the policyholder's annual income is Rs. 10 lakh, then the 1.5 crores to 2 crore of life cover would be worth it.

Conclusion

Do you wish to calculate how much term insurance do I need? We've listed all the factors to consider and methods to calculate the adequate term insurance cover. For further assistance, you can even reach out to our insurance expert team at PolicyX.

How Much Term Insurance Do I Need? : FAQ's

1. Is 50 lakh term insurance enough?

It may depend on your future goals and financial needs; you can estimate your human life value to understand how much term insurance coverage you need. If your annual income is around 5 lakhs, and you have fewer responsibilities and are buying term insurance for a shorter duration then the 50 lakhs of life cover would be worth it.

2. How much should we select term insurance?

It is advisable to get coverage of up to 15 to 20 times more than your annual income.

3. Is it okay to have 2 term insurance?

It is legal in India to hold multiple-term insurance plans, and it allows you to have a life cover from more than one source.

4. How much insurance does a 45-year-old need?

A 45-year-old individual with a yearly salary of Rs. 15 lakh will need a term insurance cover of Rs. 2,25,00,000 crore (Rs 15 lakh x 15 years left for retirement at 60).

5. How much salary is required for term insurance?

In India, you should have an annual income of at least 3 lakhs in order to buy a term plan.

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Sahil Singh Kathait

Written By: Sahil Singh Kathait

Sahil is a passionate content writer with over two years of expertise in the insurance domain. He uses his knowledge in the field to create engaging content that the customer can relate to and understand. His passion lies in simplifying insurance terminology, ensuring a hassle-free understanding for potential policyholders. With his outstanding collaborative efforts with people, he understands different perspectives and keeps readers' viewpoints at the forefront of his content writing approach.