How much life insurance cover is enough for an Indian family?

Life insurance is not a round number chosen for comfort. It is the amount your family would need in order for the household to continue functioning if your income stopped tomorrow - and that amount is calculable, not guessable.

Start with income replacement

The common rule of thumb runs between 10 and 18 times annual income. It is a reasonable starting point and a poor stopping point, because it ignores everything specific to your situation: how many years of support are needed, how old the dependants are, and what else is already in place.

A better framing is to ask how many years of your current income the family would need to remain stable, then adjust that figure upward for inflation over the period. A 35-year-old with young children is insuring a longer runway than a 52-year-old whose children have finished their education.

Add the liabilities

Add the outstanding balance on every loan: home loan, loan against property, car loan, personal loans, and any business borrowing you have personally guaranteed. This is the least negotiable part of the calculation, because these obligations survive you and land on the same family you are trying to protect.

Personal guarantees on business debt deserve particular attention. Many self-employed people carry contingent liabilities that far exceed their visible personal loans, and these are routinely left out of the sum insured.

Add the goals

School and university costs for each child, calculated at the year they will actually be incurred rather than at today's prices. Education inflation in India has consistently outpaced general inflation, and a figure set today will be materially short by the time it is needed.

A retirement corpus for a spouse who may have limited independent income. Any commitment you consider non-negotiable - the care of a parent, a sibling's dependency, a home that must remain in the family.

The right cover replaces responsibilities, not just income.

Subtract what already exists

Existing life cover, including any employer group term policy - though treat that one with caution, because it usually ends the day you leave the job, and it will not be there during the gap between roles or after retirement.

Liquid assets genuinely earmarked for this purpose: fixed deposits, mutual funds, provident fund balances. Property that the family would actually sell, which is often less than the property they own. Do not subtract the house they live in.

A worked example

Take a 35-year-old earning ₹18 lakh a year, with a home loan of ₹60 lakh outstanding and two children aged 6 and 3. Fifteen years of income replacement gives ₹2.7 crore. The loan adds ₹60 lakh. Two university educations, projected forward, might add ₹80 lakh. That is roughly ₹4.1 crore before subtracting an existing employer cover of ₹50 lakh and investments of ₹40 lakh, leaving a gap of about ₹3.2 crore.

That figure will look alarming next to the sum insured most people actually hold. It is also, for a healthy 35-year-old buying pure term cover, considerably less expensive per lakh than most expect - which is the point of running the calculation rather than avoiding it.

Keep it under review

The right number changes with every marriage, birth, house purchase, business loan and salary revision. Revisit it every few years, and specifically at each of those events, rather than treating the policy as something bought once and filed away.