What term insurance is for
Term insurance pays a lump sum, called the sum assured, to your family if you die during the policy term. There is no maturity amount if you survive. That is why the premium is low for a large cover. Its only job is to protect the people who depend on your income.
So the question is simple: if your income stopped tomorrow, how much money would your family need to carry on?
Start with a rule of thumb
A common rule of thumb is cover of 10 to 15 times your yearly income. If you earn ₹6 lakh a year, that suggests roughly ₹60 to ₹90 lakh. It’s a quick starting point, not an answer. It ignores your loans, your goals and what you have already saved.
Then work it out properly
A needs-based sum is more useful. Add up what your family would need, then take away what is already in place.
- Income replacement: your family’s yearly expenses (not your full income), times the number of years they’d need support.
- Loans: any home loan, vehicle loan, business loan or personal loan still outstanding.
- Goals: children’s education, a son’s or daughter’s wedding, care for your parents.
- Minus existing cover: any life insurance you already have, including cover from an employer.
- Minus savings: FDs, mutual funds, PPF and other money your family could use.
An illustrative example
Here’s an example with made-up numbers for a Saurashtra family with one earning member.
| What to count | Illustrative amount |
|---|---|
| Household expenses: ₹3.6 lakh a year for 15 years | + ₹54 lakh |
| Home loan outstanding | + ₹15 lakh |
| Children’s education | + ₹15 lakh |
| Existing life cover | − ₹10 lakh |
| Savings and investments | − ₹8 lakh |
| Rough cover needed | ₹66 lakh |
This keeps things simple and ignores inflation and the interest the money could earn. In real life prices keep rising, so you may want a little more. Rounding up to ₹70 or ₹75 lakh gives some margin. Try your own numbers on the term cover calculator.
Choosing the policy term
Pick a term that lasts until your family no longer depends on your income, often until your children are settled and your loans are paid off. For many people, that means cover until age 60 or 65. A longer term costs a bit more, but buying a new policy later, at an older age, usually costs a lot more.
Review after life events
Your cover should grow with your responsibilities. Look at it again when:
- you get married or have a child
- you take a home loan or a big business loan
- your income goes up a lot
- you start supporting your parents
Be honest on the proposal form
Tell the insurer the truth about your health, habits like smoking, tobacco or drinking, your income and any other policies you hold. Hiding something to get a lower premium can lead to a claim being rejected later, exactly when your family needs the money most. If you’re not sure whether something matters, mention it anyway.
Our team can help you compare term life plans and fill in the proposal form correctly.