Protection7 min read
How much life cover is actually enough
The 'ten times salary' rule is a starting point that quietly ignores your loan, your children's ages and thirty years of inflation.
What the cover is for
Life insurance does one job: it replaces an income that has stopped. Everything else — the maturity benefit, the bonus, the tax break — is a distraction from that job, and usually an expensive one.
So the question is not 'how much cover can I afford'. It is 'how much money would my household need to carry on without my earnings, and for how long'. Once you frame it that way the number stops being a guess.
Build the number from four parts
Add these together, then subtract what already exists. The result is your gap.
- Income replacement
- Annual household expenses your income covers, multiplied by the number of years your dependants would need support. For a parent of a five-year-old, that is rarely fewer than eighteen years.
- Outstanding debt
- Home loan, car loan, any personal borrowing. This should be cleared outright, not serviced from the replacement income.
- Dated obligations
- Education costs and any goal your family would still have to meet. Inflate these to the year they fall due — education inflation typically runs ahead of general inflation.
- Less: existing assets and cover
- Employer group cover (which usually ends with the job), existing policies, and liquid investments genuinely earmarked for the family rather than for a goal.
Why the multiple rules mislead
Ten times annual income sounds prudent until you apply it. A 38-year-old earning ₹20,00,000 with a ₹60,00,000 home loan and two young children gets ₹2,00,00,000 from the rule. Clear the loan and ₹1,40,00,000 remains to support a family for roughly two decades — before inflation, and before school fees.
The multiple is not wrong so much as insensitive. It does not know how old your children are, whether you have a loan, or whether your spouse earns. Those three facts move the answer more than your salary does.
Buy term, and buy it plainly
Pure term cover has no investment component, which is exactly why it is cheap enough to buy in the quantity you actually need. A healthy 35-year-old can usually cover ₹1,00,00,000 for well under 1% of annual income.
Set the term to the year your youngest dependant becomes financially independent, or the year your loan ends — whichever is later. Cover you no longer need is not a saving; it was never the point.
What to take away
- Size cover against obligations and years of dependency, not against a multiple of salary.
- Clear debt separately from income replacement — do not ask one pot to do both jobs.
- Employer group cover ends when the job does. Treat it as a bonus, never as the plan.
- Term insurance is the only product that lets you buy the quantity you actually need.