What is the right amount of life insurance cover for me?

Current income, outstanding loans, future liabilities, total financial assets, and age are some of the factors for determining life coverage.

How much insurance do I need?That's a question you’ll have to face in the process of buying a life insurance policy. While deciding the cover, it is important to remember that the objective of insurance is to provide financial support to your family and/or dependents, in case you (as the primary breadwinner) are no more, or are unable to earn because of a permanent disability or illness. The life cover you decide on should be adequate to help your family maintain the standard of living you would have provided for them always.

To do this and secure the future of your family, you’ll need to make a smart and well-informed decision today. Start by identifying your financial goals and then  estimate the cover you will need to meet those goals.

How Much Life Insurance Cover You Should Buy?

Deciding how much insurance cover you’ll need to buy is not actually that tedious a process. It’s just a matter of keeping the following factors in mind:

  • Your Current Annual Income
    The first major factor to consider in the process of deciding your life insurance coverage, is your current annual income. While ‘10 times the annual income’ used to be the thumb rule to decide the life cover, high inflation, and the rising costs of living now warrant that you opt for at least 20 times your annual income1.

    So, if your present income is Rs. 5 lakhs per annum, it would be prudent to opt for a life insurance policy that offers a cover of Rs. 1 crore. This amount would help your family cover their annual expenses and maintain their standard of living in your absence.
  • Your current and future Financial Liabilities
    Your financial liabilities like outstanding loans and debts are another major factor to consider while choosing the sum assured of your life insurance plan. In case you die early, your family may have a hard time managing EMIs along with household expenses, especially if you were the sole breadwinner. Thus, always ensure that the coverage is large enough to meet all your existing liabilities.

    Financial assets that are liquid or near-liquid could also help your family meet these liabilities. For example, bank deposits, stocks, or mutual funds. You can therefore, take the approximate market value of these assets into account, while calculating your required coverage and reduce it accordingly.
  • What are your Financial Goals
    Your financial goals of course play a major role in deciding your coverage. The whole point of insurance is to help your family maintain the lifestyle you provided for them, in case of your early passing. That includes meeting financial goals like your children's education and marriage, both of which require a considerable amount of money. Your life cover must therefore factor in these liabilities that you are likely to face in the future, while keeping inflation in mind.
  • Your age at the time of purchasing the policy
    The age at which you’re buying your policy is also pretty important, because, different life stages have different requirements. That also makes reviewing a life insurance policy periodically, quite necessary. The thumb-rules for the choosing a life cover for different age groups are explained below:


The Coverage

25-35 Years

(Approx. 18 x Current annual income) + outstanding loans

25-45 Years

(Approx. 15 x Current annual income) + outstanding loans

45-55 Years

(Approx. 10 x Current annual income) + outstanding loans


How long do you want to remain covered While deciding the cover, it is important to choose the policy tenure carefully. The life insurance policy cover that stops covering you when you are 50 may not be that great. Ideally, you should buy when you are younger, and opt for the maximum tenure possible.

Getting the right cover is not rocket science. Today online calculators are available to help you find the cover you need, once you’ve decided your goals. An average buyer aged 30-35 years can avail a Rs. 1 Crore policy for an annual premium of Rs. 10,000 to Rs. 12,000.

Read more to learn about life insurance and buy a policy online.



1. (http://www.moneycontrol.com/news/business/personal-finance-business/how-much-life-insurance-cover-you-should-buy-1438259.html)

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