Choosing a cover amount is the most important part of buying term insurance. Too little leaves your family at risk, while too much strains your budget. Here are simple ways to find the right number.
Method 1: Income Multiple
A quick rule is to take 10 to 15 times your annual income. If you earn ₹8 lakh a year, a cover of ₹80 lakh to ₹1.2 crore is a reasonable range.
Method 2: Human Life Value (HLV)
This method estimates the total income you would earn until retirement and adjusts it for inflation and existing savings. It is more accurate, and many online calculators use it.
Method 3: Expense and Liability Method
Add up these amounts:
- Your family’s yearly expenses multiplied by the number of years they need support
- Outstanding loans such as home loan or car loan
- Future goals like children’s education and marriage
- An emergency buffer
Then subtract your existing savings and investments, and any other life cover. The result is the cover you should buy.
Factors That Change Your Requirement
- Number of dependents
- Age of children
- Inflation over the coming decades
- Spouse’s income
- Lifestyle and future goals
Review Cover Regularly
Your needs change after marriage, a child, a home loan or a promotion. Review your cover every few years, and consider buying an extra policy or a riders when life changes.
Final Thoughts
A cover of at least 10 times your annual income is a good starting point. If you have loans and young children, aim higher.
Frequently Asked Questions
Is ₹1 crore enough?
It may be enough for some families, but not for those with large loans or high expenses.
Should homemakers buy term insurance?
It is possible in many cases, especially if the household would need to pay for replacement services. Insurers set specific rules.
Can I increase cover later?
Some plans allow it on life events; otherwise you can buy a new policy.
