Insurance
How Much Term Insurance Do I Need? A Step-by-Step Way to Work It Out
By Mrs. Manalee Verneker
2 November 2026 · 8 min read
"How much term insurance do I need?" is one of the questions we hear most. The honest answer: enough that, without your income, your family could keep living the life you planned for them, clear what you owe and still reach the big goals.
That sounds abstract, so this guide turns it into a calculation you can do with a pen and paper, followed by three worked examples.
Start with the rule of thumb
A widely used shortcut is cover of 10 to 15 times your yearly income. For someone earning ₹12 lakh a year, that suggests ₹1.2 crore to ₹1.8 crore. It is quick, and for many young earners it lands in the right range.
Its weakness is that it ignores your actual life. Two people on the same salary can need very different cover: one with a large home loan and two young children, the other with no loan and a working spouse.
The needs-based method in four steps
- Loans. Add every outstanding loan: home, car, personal. Your family should not inherit an EMI.
- Future goals. Add the big costs your income was meant to fund, such as children's higher education or a parent's care, at today's cost.
- Household expenses. Take yearly household spending, leaving out your own personal costs and the EMIs already counted. Multiply by the number of years your family would need support: until your youngest child is independent, or until your spouse's income could carry the household.
- What you already have. Subtract life cover you hold personally and investments your family could use. Leave out employer group cover: it usually ends with the job.
Cover needed = loans + goals + years of expenses − existing cover and usable investments.
This simple version assumes the money your family would invest keeps pace with rising costs. A detailed calculation adjusts for both, but the simple one is close enough to show whether you are roughly covered or far short.
Worked example
A single-income family with young children
Kunal, 33, earns ₹18 lakh a year. His wife looks after their two children, aged 4 and 1. His home loan has ₹55 lakh outstanding. Household spending is ₹7 lakh a year, of which about ₹1 lakh is his own personal cost.
Loans: ₹55 lakh. Goals: higher education for two children at about ₹25 lakh each in today's money, ₹50 lakh. Expenses: ₹6 lakh a year for 20 years, until the younger child is about 21, ₹1.2 crore. Already in place: a ₹10 lakh personal policy and ₹15 lakh in mutual funds, ₹25 lakh.
Cover needed: ₹55 lakh + ₹50 lakh + ₹1.2 crore − ₹25 lakh = ₹2 crore.
The rule of thumb would have suggested ₹1.8 crore to ₹2.7 crore. The needs-based number sits inside that range, but now Kunal knows why, and which parts shrink as the loan is repaid and the children grow up.
Worked example
Two incomes, older children
Anita, 44, earns ₹24 lakh a year. Her husband works too, and his income would cover about half of the household's ₹12 lakh yearly spending. Their children are 15 and 12, and ₹20 lakh is left on the home loan.
Loans: ₹20 lakh. Goals: education for two children at ₹30 lakh each, ₹60 lakh. Expenses: the other half, ₹6 lakh a year for 10 years, ₹60 lakh. Already in place: ₹40 lakh of personal cover and ₹30 lakh of investments, ₹70 lakh.
Cover needed: ₹20 lakh + ₹60 lakh + ₹60 lakh − ₹70 lakh = ₹70 lakh.
The rule of thumb would have suggested ₹2.4 crore to ₹3.6 crore. Because her children are older, her husband earns and she has built savings, Anita's real gap is far smaller. The same calculation for her husband gives a separate number for his own cover.
Worked example
A young earner with no dependants yet
Priya, 27, is single, earns ₹9 lakh a year and has ₹6 lakh left on an education loan. Her parents are financially independent. Strictly, her need today is the loan.
Many people in her position still take a modest term plan now, because premiums are lower when you are young and healthy, then add cover when they marry or take a home loan. Some term plans let you increase cover at such life events, within limits set in the policy.
All figures in these examples are illustrations. Your own number depends on your loans, goals, family and savings.
How long should the cover run?
Until the last person who depends on your income no longer does, and your loans are paid off. For most people that means age 60 to 65. Cover to 80 or 99 costs more and protects years in which, for many families, nobody depends on that income any more.
Mistakes that leave families short
- Counting employer cover as your own. It usually ends with the job.
- Forgetting loans taken after the policy was bought.
- Choosing a short term to save premium, so cover ends while the children are still studying.
- Not telling the family the policy exists, or leaving an old nominee in place.
- Leaving out a health condition or habit on the proposal, which can put a claim at risk.
Review it as life changes
Your number moves. A new child, a bigger home loan or a large rise in income pushes it up; paying off the loan and building investments brings it down. A quick review every few years, and after each big event, keeps your cover in step with your life.
How we can help
Want a second pair of eyes on your number? Get a second opinion on your life cover: we add up what you hold against your loans and your family's needs. When you are ready to apply, use our term insurance form. For the background on policy types, read Term insurance vs life insurance, or see how we approach insurance.
Frequently asked questions
Add your loans, your family's future goals and the years of household expenses they would need covered, then subtract existing cover and usable investments. A rule of thumb of 10 to 15 times yearly income is a starting point.
For some families, yes. For a 30-year-old with a large home loan, young children and a single income, it often falls short. Working out loans, goals and years of expenses shows your own number.
Until nobody depends on your income and your loans are paid, which for most people is 60 to 65. Longer cover costs more and protects years when it may not be needed.
Count it separately. Group cover from work usually ends when the job does, so it should not be the base your family relies on.
You can buy another term plan at any time, subject to fresh underwriting. Some plans also let you increase cover at life events such as marriage or the birth of a child, within limits set in the policy.
The work a homemaker does, such as childcare, would cost the family money to replace. Some insurers offer cover for homemakers, usually linked to the spouse's own cover and income.
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