How much term insurance cover do you actually need?

Start with who depends on you

Term insurance has one purpose: to replace your income for the people who rely on it, if you die early. It pays nothing if you live, which is why it is cheap, and why it should not be mixed with investment. Our piece on term insurance vs endowment plans and the guide on why insurance is not an investment cover that split.

If nobody depends on your income, you probably do not need a large cover. If a spouse, children or parents do, the question is how many rupees it takes to keep their life on track without you.

The shortcut and the needs-based method

The usual rule is 10 to 15 times your annual income. It is easy and gives a sensible ballpark, but it ignores three things that change the answer: how much of your income your family actually spends, how many years they need support, and what you already own and owe. A 30-year-old with a ₹12 lakh income and a ₹40 lakh home loan has a very different need from a 50-year-old with the same income and no debt.

Add up four things, then subtract two.

1. Living expenses for the family, for as many years as they would need them.
2. Loans that would fall on the family: home loan, car loan, personal loans.
3. Future goals: children's education, a daughter's wedding, parents' care.
4. A buffer for medical costs and a transition period, say 6 to 12 months of expenses.

Then subtract existing assets you would leave behind (investments, fixed deposits, provident fund) and existing life cover, including any employer group cover that ends if you change jobs.

A worked example

This is an illustration with assumed numbers, not a forecast. A 30-year-old earns ₹12 lakh a year. Her family spends ₹6 lakh a year in today's money and would need that for 25 years. She has a ₹40 lakh home loan outstanding, wants ₹30 lakh set aside for her child's education, and holds ₹20 lakh of investments.

Living expenses. If the insurance payout is invested at an assumed 7% a year and expenses rise 6% a year, the money earns a real return of only about 0.94% a year after inflation. The amount that funds ₹6 lakh a year, rising with inflation, for 25 years comes to about ₹1.33 crore.

That is about 15 times her income, at the top of the usual 10-15x range, which makes sense for a young earner with a loan and a dependent child. Try your own figures in the term insurance calculator; the inflation calculator shows what ₹6 lakh a year will cost later.

The answer is sensitive to the return and inflation you assume. At a 1% real return the living-expense figure barely changes, but at a 4% real return it falls, which is why planners keep the assumption cautious. When in doubt, round up: the extra premium for a bigger cover is small compared with the shortfall.

Tenure, riders and the fine print

Before comparing premiums, compare the claim process. Ask how the insurer handles documents, how long it takes to settle, and whether it offers a medical check-up at the start. A lower premium for a plan whose claims are slow is no saving.

• Tenure. Run the policy to about age 60 or until your loans end and children are independent. A longer term costs more for cover you may no longer need.
• Level or reducing cover. A plan that lowers the sum assured over time is cheaper but mirrors a shrinking need; check that it still covers your loan.
• Riders. Critical illness and accidental death riders cost extra. Keep health insurance separate; see health insurance waiting periods and exclusions.
• Disclosure. Declare income, smoking, health and existing policies accurately. An insurer can reject a claim over a misstatement, which turns a cheap policy into a worthless one.
• Nominee and communication. Tell the nominee the policy exists and where it is kept.

For choosing between insurers, the IRDAI publishes claim-settlement data in its annual report; compare several years, not one. The IRDAI site has those reports, and policyholders with a grievance can use its Bima Bharosa portal.

Tax treatment, as of October 2026

The death benefit paid to a nominee under a term plan is exempt from income tax (section 10(10D) of the old Act, carried into the Income-tax Act, 2025). The premium counts for a deduction under old section 80C (now section 123), but only if you use the old tax regime, which the new regime does not allow. The section 80C calculator shows how much of the ₹1.5 lakh limit this uses up. Confirm the current rules on incometax.gov.in before you choose a regime on that basis; the premium is rarely a good enough reason alone.

When to revisit the number

Your need changes over time. For most people it peaks in the late thirties and early forties, when loans are largest and children are youngest, and then falls as loans shrink and savings grow. Cover bought at 30 for a 30-year term is therefore generous in the final decade, which is a feature, not a flaw: it protects against changes you cannot foresee. Recalculate when something material changes: a marriage, a child, a new home loan, a job change that ends group cover, or a large rise in income. Tracking your net worth every quarter tells you when assets have grown enough to reduce the need, and the net worth calculator does the sums. For funding the goals that sit inside the number, see goal-based investing.

This post is for education only and is not insurance, investment or tax advice. The worked example uses assumed figures, not a forecast. Premiums, products and rules change; verify with the insurer and current law.