Term Insurance: How Much Cover Do You Actually Need?

# Term Insurance: How Much Cover Do You Actually Need? Most Indians are severely underinsured. The common advice — "10x your annual income" — is a rough heuristic that often misses the actual liability. ## The Income Replacement Method The goal of term insurance is to replace your income for the years your family depends on it. Formula: **Cover = Annual income × (years to retirement) × inflation adjustment** For a 35-year-old earning ₹15L/year planning to retire at 60: - Years to retirement: 25 - Inflation-adjusted income replacement (at 6% inflation, 8% discount rate): ₹2.3 crore needed ## Add Your Liabilities If you have a home loan of ₹70L outstanding, that liability should be covered separately or added to the base amount. Your family should not have to liquidate investments to service the loan. ## The Deductions Subtract: existing investments/assets your family would inherit, any EPF/gratuity corpus, spouse income if substantial. ## Term vs ULIP Never buy ULIP as a substitute for term insurance. A ₹1 crore term plan for a 35-year-old costs roughly ₹8,000–10,000/year. The same ₹1 crore in ULIP costs ₹2–3L/year. The insurance component of ULIP is a fraction of the premium — the rest is investment with high charges. ## Practical Recommendation For a 30–40-year-old with dependents: minimum ₹1.5–2 crore cover. Prefer online-issued term plans from established insurers (ICICI Pru, HDFC Life, Max Life). Ladder two policies from different insurers to avoid concentration risk.