🛡️ INSURANCE · DIRECT ANSWER
How Much Term Insurance Cover Do You Actually Need?
THE DIRECT ANSWER
For someone aged 35 earning ₹12,00,000 a year, replacing that income until 60 requires a corpus of roughly ₹2,37,42,518: assuming 6% inflation and 8% returns on the payout. Add an outstanding ₹40 lakh home loan and subtract ₹10 lakh of existing savings and the requirement becomes about ₹2,67,42,518. The ₹1 crore policy most people buy is roughly 37% of what the maths asks for.
The simple rule of thumb
The common shortcut is 15 to 20 times annual income. On ₹12,00,000 a year:
| Method | Cover |
|---|---|
| 15 × annual income | ₹1,80,00,000 |
| 20 × annual income | ₹2,40,00,000 |
Useful as a starting point. It ignores your loans, your existing savings and how many working years you have left: all of which move the answer significantly.
The proper calculation
Work out the corpus that would generate your income for the remaining working years, then adjust for what you owe and what you already have.
Step 1: Income replacement
Your family needs ₹12,00,000 a year, rising with inflation, for the 25 years to age 60. If the payout is invested at 8% while inflation runs at 6%, the real return is about 1.89%. The corpus required is ₹2,37,42,518.
Step 2: Add what must be repaid
| Income replacement corpus | ₹2,37,42,518 |
| + Outstanding home loan | ₹40,00,000 |
| + Other loans | ₹0 |
| + Specific future goals (education, marriage) | Add your own |
| − Existing savings and investments | ₹10,00,000 |
| − Existing cover (employer policy) | Deduct if genuinely portable |
| Cover needed | ≈ ₹2,67,42,518 |
Round up to the nearest convenient figure: ₹2.75 crore or ₹3 crore. The premium difference between ₹2.5 crore and ₹3 crore is usually far smaller than people expect, because the fixed costs of the policy are spread over a larger sum assured.
💡 THE KEY INSIGHT
Term cover is not a number you pick because it sounds substantial. It is the size of the hole your income leaves behind. "₹1 crore" is a round number, not a calculation: and it is the single most common reason families are underinsured.
Why ₹1 crore is usually not enough
₹1 crore sounds like a lot. Invested at 8% with 6% inflation, it supports roughly ₹12,00,000 a year for about 9 years: not the 25 the family needs. It also assumes the home loan is separately covered and no major goals remain unfunded.
Three further points people miss:
- Employer cover is not your cover. It usually ends with the job, at exactly the moment you may most need it.
- A non-earning spouse still has economic value. Childcare and household work would otherwise have to be paid for.
- Inflation does not pause. ₹12,00,000 today is roughly ₹51,50,000 a year in purchasing-power terms after 25 years at 6%: which is why the corpus calculation uses real returns rather than nominal ones.
How long should the cover run?
Until your dependants stop depending on your income: typically the later of: your planned retirement age, your youngest child becoming financially independent, or your longest loan closing.
Cover beyond that point is generally unnecessary. Once the loans are repaid, the children are earning and the retirement corpus is built, there is no income left to replace. That is also why term insurance is cheap: it covers the window where the risk actually lives.
Assumptions
Age 35, annual income ₹12,00,000, cover to age 60 (25 years). Payout assumed invested at 8% p.a. with 6% inflation, giving a real return of about 1.89%; the corpus is calculated as an inflation-adjusted annuity. Returns and inflation are assumptions, not guarantees. Home loan ₹40,00,000 and existing savings ₹10,00,000 are illustrative: substitute your own. Excludes tax treatment of the payout and any employer cover.
The one-line summary
Take your annual income, work out the corpus that replaces it until retirement, add your loans, subtract your savings. For a 35-year-old earning ₹12 lakh, that is roughly ₹2.67 crore: not ₹1 crore. Buy the number the calculation gives you, not the number that sounds big.
Frequently asked questions
Enough to replace your income until retirement, plus outstanding loans, minus existing savings. For a 35-year-old earning ₹12,00,000 a year with a ₹40 lakh home loan and ₹10 lakh saved, that is about ₹2.67 crore. A quicker rule of thumb is 15 to 20 times annual income.
Often not. Invested at 8% with 6% inflation, ₹1 crore supports an income of ₹12,00,000 a year for roughly 9 years, not the 25 years a 35-year-old's family would need. It is a round number rather than a calculation.
Treat it as a bonus, not as your cover. Employer group life insurance usually ends when you leave the job, and it is rarely portable. Buy your own policy sized as if the employer cover did not exist.
Until dependants no longer rely on your income: typically the later of retirement age, your youngest child becoming independent, or your longest loan closing. Cover beyond that point generally adds cost without adding protection.
Work out your number: Term cover calculator · Retirement calculator
Figures are illustrative at the stated assumptions and are not projections. Premiums and terms vary by insurer, age and health. Educational content only, not personalised insurance advice. Consult a licensed adviser and read the policy wording before buying.