Term insurance does one job: if the insured person dies during the policy term, it pays a lump sum to the nominees. Because it does only that, it is the most direct way to protect a family that depends on someone's income. The harder question is how much cover is enough. There is no single right number, but there are sensible ways to estimate one.
Method 1: income multiple
The simplest approach multiplies annual income by a factor; ten to fifteen times is a frequently cited rule of thumb.
It is fast and easy to remember. It is also blind to your situation: it ignores debts, the number and ages of dependants, existing assets and how long the income needs to last. Treat it as a sanity check, not a plan.
Method 2: needs-based
This method asks what your family would need, in today's money, if your income stopped:
- Household expenses the family would continue to incur — excluding your own personal spending — for as many years as they would have depended on your income, allowing for inflation and for the return the money could earn.
- Outstanding debts, such as a home loan or car loan, so the family is not left with EMIs.
- Committed goals, such as children's education or a parent's care.
- Minus existing life cover and investments that would be available for these needs.
Method 3: human life value
The human life value (HLV) method estimates the present value of the income you would contribute to your family over your remaining working life, after your own expenses. It values your earning capacity from your dependants' point of view.
One family, three estimates
For illustration, consider Ravi, 35, earning ₹18 lakh a year, with a spouse and a young child. Assume:
- household expenses, excluding Ravi's own, of ₹9 lakh a year, needed for 25 years
- inflation of 6% a year, and a 7% annual return on money the family would invest
- a home loan of ₹40 lakh outstanding
- ₹30 lakh, in today's terms, for the child's education
- ₹20 lakh of existing investments the family could draw on
- ₹50 lakh of existing life cover through an employer's group policy
| Method | Estimate | Built from |
|---|---|---|
| Income multiple | ₹1.8 – 2.7 crore | 10 to 15 × ₹18 lakh |
| Needs-based | about ₹2.5 crore of total need; a gap of about ₹2.0 crore after existing cover | about ₹2.01 crore for expenses + ₹40 lakh loan + ₹30 lakh education − ₹20 lakh investments, then − ₹50 lakh cover |
| Human life value | about ₹2.8 crore | 70% of income going to the family, growing 6% a year for 25 years, valued at 7% |
The three methods land in a broadly similar range, which is reassuring. The needs-based method is usually the most useful, because every line is something you can check and change.
Note: These figures rest on hypothetical assumptions, and small changes matter. At an assumed 8% return instead of 7%, the expense component of the needs-based estimate falls from about ₹2.01 crore to about ₹1.81 crore.
Why existing cover may count for less
In the example, the ₹50 lakh comes from an employer's group policy. That cover usually ends when the job does, and its amount can change. Many people count only the individual policies they own when sizing cover, and treat employer cover as a useful extra.
Choosing the policy term
Cover should last as long as someone depends on your income. Common anchors:
- your planned retirement age, when your savings should take over
- the age at which your youngest child is expected to be financially independent
- the date your major debts will be repaid
Cover running well past these points generally costs more without adding much protection.
Other things that matter
- Disclose fully. Health conditions, habits such as smoking and existing policies should be declared accurately; non-disclosure is a common cause of claim disputes.
- Name nominees and keep them current. See our nominations and documents checklist.
- Look at claim records over time. Insurers' claim settlement ratios are published every year; look at several years, not one.
- Treat riders as extras. Add-ons such as accidental death or critical illness riders can be useful, but should not crowd out the core cover.
- Keep protection and investment separate. Policies that combine savings with insurance generally provide less life cover per rupee of premium. For pure protection, term cover is the most direct tool.
Estimate yours
The Insurance Cover Calculator works through the income-replacement and expenses-and-liabilities methods with your numbers and shows an indicative gap, with the methodology on the page. It is a starting point, not a recommendation of any policy. Our term insurance page explains the product in more depth, and the Wealth Lab places protection alongside the rest of your finances.