Life is an unanticipated terrain. While you cannot predict the future, you can certainly prepare for it. That is where term insurance comes in.

A term insurance plan is one of the best ways to protect your loved ones financially if something happens to you.
But the million-dollar question is - how much term insurance cover do you need? Let’s break this down and help you understand how to choose the ideal term insurance cover - neither too little nor unnecessarily outsized. 

In this blog, you'll learn about:

What Is Term Insurance Cover?

Before jumping into the calculations, let’s understand the meaning of the term insurance cover.'
A term insurance policy is a contract between you and an insurance provider. According to this agreement, you need to make regular payments to your insurer in the form of premiums. In exchange, the insurer promises to pay a term insurance sum assured to your nominee if you pass away during the policy term.

The term plan cover amount or “coverage” is essentially the sum assured. Also, you need to make sure that the amount is enough to take care of the following aspects:

  • Replace your income
  • Repay liabilities, such as home loans or personal loans
  • Find your children’s education
  • Maintain your family’s lifestyle
  • Cover major life goals in your absence

Also Read: What is the 3-year rule in term insurance?

Why Does One-Size-Fits-All Don't Work?

A common mistake people make is opting for a random number, such as INR 50 lakh or INR 1 crore, simply because it sounds impressive. But the right coverage depends entirely on the following parameters:

  • Your current income
  • Financial liabilities
  • Lifestyle expenses
  • Future financial goals
  • Dependents

Therefore, asking “How much term insurance do I need?” is a highly personal question and deserves a customized answer tailored to your needs.

Rule of Thumb: 10–20 Times Your Annual Income

Financial experts often suggest that your ideal term insurance cover should be at least 10 to 20 times your annual income. Here is an example for you: If you earn INR 10 lakh per year, the minimum cover should ideally be INR 1 crore, and the maximum should be INR 2 crore. But is this rule enough? Not always. It does not count your age, family situation, or liabilities. So, how to calculate the extent of coverage you need? Read on!

Use a Term Insurance Coverage Calculator

Instead of relying on vague rules, use a term insurance coverage calculator to get a precise estimate. These calculators typically ask for the following details:

  • Your current age
  • Monthly expenses
  • Annual income
  • Existing liabilities
  • Expected future expenses
  • Current savings/investments

Factors That Influence Your Term Plan Cover Amount

Here is a list of the key variables that are likely to impact your coverage needs:

  1. Age: Younger individuals can opt for higher cover at lower premiums. The earlier you buy, the lower the price.
    Dependents: Having more dependents means higher coverage. Be sure to consider your spouse, children, parents, and anyone who is financially reliant on you.
  2. Liabilities: Your insurance should fully cover your liabilities, including home loans, education loans, business debt, and other similar obligations.
  3. Lifestyle: If you live in a metropolitan area with high living costs, factor that into your budget.
    Income: The higher your income, the more coverage you are likely to need to replace that income in case of untimely death.
  4. Health: Premiums and eligibility may change depending on your health condition. 

Common Mistakes to Avoid When Planning to Buy Term Coverage

Underestimating Inflation: Always remember! One crore today won’t have the same value 15–20 years from now. So, always factor in inflation when planning to get a term insurance plan.

Hiding Health Conditions: Concealing health conditions is not a good idea at all. Ensure that you disclose all health-related information to ensure your family receives the payout.

Not Reviewing Cover Over Time: Life changes with marriage, kids, loans, and many other responsibilities. Review your term coverage every 3 to 5 years for sufficient coverage.

Should You Increase Term Cover Later?

Yes. Many insurance providers now offer increasing term insurance plans, where the term insurance sum assured increases each year or after certain milestones, such as marriage or childbirth. Alternatively, you can purchase an additional policy if your financial responsibilities increase significantly.

You can also speak with a Point of Sale Person (POSP) or life insurance agent to either top up your existing cover or purchase an additional plan tailored to your new needs. An agent can help tailor your policy based on ongoing life-stage transitions.

Conclusion

Choosing the ideal term insurance cover is not just about selecting a big number. It is about ensuring your family lives comfortably and reaches their life goals, even in your absence. Use tools like a term insurance coverage calculator, consider your liabilities and goals, and review regularly. When someone asks, “How much term insurance do I need?”- now you'll know how to get the right answer, tailored just for you.