What is the right term cover for a 32-year-old earning ₹15 lakh with two young children and a home loan?
Scenario
Earner age 32, annual income ₹15L, annual household expenses ₹10L, home loan outstanding ₹40L, two children aged 5 and 3, parents in 60s, existing financial corpus ₹30L
Inputs
- Earner age
- 32
- Home loan INR
- 40,00,000
- Children count
- 2
- Annual income INR
- 15,00,000
- Annual expenses INR
- 10,00,000
- Existing corpus INR
- 30,00,000
Calculation
- 1.
Income method: 15× annual income
15 × ₹15L → ₹2.25 Cr
- 2.
Expense method: 25× annual expenses
25 × ₹10L → ₹2.50 Cr
- 3.
Take higher of two methods
max(22.5L × 100, 25L × 100) → ₹2.50 Cr
- 4.
Add: outstanding home loan
+ ₹40L → ₹2.90 Cr
- 5.
Add: 2 children's education at ₹50L each
+ ₹1 Cr → ₹3.90 Cr
- 6.
Add: parental healthcare buffer
+ ₹25L → ₹4.15 Cr
- 7.
Subtract: existing investable corpus
− ₹30L → ₹3.85 Cr
- 8.
Round to clean policy amount
₹38.5L → ₹40L → ₹4.00 Cr
Conclusion
₹4 crore term cover, 30-year tenure. Annual premium for a healthy 32-year-old non-smoker: ₹38,000-50,000. The cost is 0.25-0.33% of annual income for protection against catastrophic family financial loss.
Tradeoffs
The ₹4 Cr figure assumes children pursue private engineering/medical education in 2040s rupees (~₹50L each then). If education funding is via loans (Section 80E deductible) or government colleges, target can drop by ₹50-60L. Higher-spending households need higher cover; dual-income households where spouse can replace partial income need somewhat less.