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How Much Term Insurance Coverage Do I Need?

While buying term insurance the biggest question is how much term insurance coverage do you really need? Let's understand how to get the ideal amount for your financial peace of mind.

  • Nov 08, 2023
Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

The fundamental reason for buying term life insurance is to ensure that your family will have enough money to live on if you die unexpectedly. However, one critical topic to consider here is how much term insurance do we need?

In India, many term insurance buyers tend to purchase a life insurance policy for ₹1 crore. One crore is a significant amount. But most people tend to buy a policy randomly without giving a thought to the coverage amount. So, how to determine the right coverage amount? Read on to find out.

So, if you are looking to buy a term insurance, here is what you need to know about the sum assured and how you can calculate your life insurance needs.

How do I calculate how much life insurance I need?

Deciding sum assured or life cover requirement is no rocket science. You need to keep a few critical factors in mind that are discussed below.

  • Your annual income

One of the critical factors to consider in deciding the term insurance coverage is assessing your current financial condition. Generally, insurance experts suggest following the rule of thumb, i.e., your term insurance coverage must be at least 15 to 20 times your current annual income.

So, if your current annual income is ₹10 lakhs per annum, it would be prudent to purchase a term plan with a sum of ₹2 crores. This sum will assist your family in meeting their annual expenses despite growing inflation and maintaining their present standard of living.

  • Assess your liabilities

Your financial liabilities like home loans, business loans, personal loans, and credit card bills are vital factors to consider before buying insurance coverage. In the event of your untimely demise, the repayment burden will fall on your family members, who may face difficulty managing the EMIs and household expenses. To avoid such an unfortunate situation befall your family, you must choose a term plan with high coverage that meets all your existing liabilities.

  • Know your financial goals

Your financial goals play a significant role in deciding the life insurance coverage. The whole purpose of buying a term plan is to protect your family from future uncertainties and provide them with a robust financial cushion to maintain their current standard of living even in your absence.

Also, you must ensure that the payout is large enough to help the family meet necessary expenses like children’s education and marriage, both of which require a considerable amount. Therefore, your term insurance payout must support your family to meet these expenses.

  • Current age

When buying a term insurance plan, your age is vital because your financial needs and goals may change at different life stages. This also makes reviewing your policy periodically necessary. So, when you are newly married and have liabilities, you may need a high-value term plan compared to when you are nearing retirement age. At this stage, your children may have become financially independent, and you may have already paid off your loans.

Tips to Choose Life Insurance Coverage

Choosing a life insurance policy is a critical life decision. However, it is not the only factor to consider while selecting life insurance. The following are some suggestions for choosing the best life insurance coverage:

Use Life Insurance Calculators

Before obtaining any life insurance plan, use online calculators to determine the premium due for a specific life cover. It is quite easy to use them, and you can check how the premium varies with different sum assured, policy period, payment modes, and payment terms.

Buy Life Insurance Online

Many benefits of purchasing life insurance online include the ease of comparing multiple policies, low rates, and speedy policy purchase. You can purchase the coverage without leaving your home or workplace, eliminating the need to contact a local agent or insurer’s branch office.

Term insurance should be a part of your financial portfolio but you must also choose one that helps you fulfil that purpose. You should not choose any term insurance only because it helps you save taxes or the premium is low.

If you have come till here, we are sure that you have found some really helpful information about choosing a term plan cover and the factors you must consider before choosing one. So, now, you can buy one and secure your family’s future.

FAQs: Term Insurance Cover

1.What does term insurance cover mean?

Term insurance is a type of life insurance that provides the policyholder with financial protection. The company pays the beneficiary the death benefit if the insured person passes away during the policy period.

2.What does term insurance not cover?

Death caused by self-caused injuries like suicide, HIV/AIDS is not covered by term insurance plans. Term plans include coverage for death caused by any serious illness. It is required that you mention any illnesses you have when buying a term insurance plan.

3.Is the accident covered by term insurance?

Accidents are indeed covered by term insurance. In a conventional term insurance policy, the sum assured is paid regardless of the cause of death, including those brought on by illness or accidents.

4.What is a good amount for term life insurance?

A suitable sum for life insurance, according to the majority of insurance firms, is six to 10 times the yearly earnings.

5.What age should term life insurance end?

Term insurance is a fundamental form of protection that offers a death benefit in the event of the policyholder’s untimely passing during the policy term. Term insurance can be purchased by a policyholder from the age of 18 to 65.

Kotak e-Term

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  • Life Cover till 85 years for Life & Life Secure Option
  • 3 Payout Options
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Ref. No. KLI/22-23/E-BB/2435


- A Consumer Education Initiative series by Kotak Life