Choosing the right term insurance cover can feel confusing — should you go with ₹50 lakh? ₹1 crore? More? In 2025, with rising inflation and uncertain futures, it’s more important than ever to calculate your life cover scientifically, not emotionally.
Here’s a simple 3-step formula that makes it easy for anyone earning a monthly income to figure it out — no financial advisor needed.
Step 1: Multiply Your Annual Income by 10 to 20 Times
The basic rule of thumb is:
Life Cover = 10X to 20X Your Annual Income
So if you earn ₹6 lakh per year, you’ll need:
₹60 lakh to ₹1.2 crore in term cover.
Why such a big range? Because the exact number depends on your debts, responsibilities, and how long your family will need support.
Step 2: Add Outstanding Loans & Education Costs
- Home loan balance
- Personal or car loans
- Children’s education (school + college)
- Planned marriage costs
For example, if your home loan has ₹25 lakh pending, and your child’s education may cost ₹15 lakh, add that ₹40 lakh on top of Step 1. So now, you’re looking at a cover of ₹1.6 crore or more.
Step 3: Subtract Existing Assets & Insurance
- PF balance
- FDs, stocks, or mutual funds
- Other term/life insurance policies
- Emergency fund
Let’s say you have ₹20 lakh in total savings and an existing LIC endowment with ₹10 lakh coverage. That’s ₹30 lakh deducted. So final required sum = ₹1.6 crore – ₹30 lakh = ₹1.3 crore
Real-Life Example
Ravi, 35, earns ₹50,000/month (₹6 lakh/year). He has a ₹20 lakh home loan and wants to provide ₹15 lakh for his daughter’s college.
- Step 1: ₹6 lakh × 15 = ₹90 lakh
- Step 2: Add ₹35 lakh = ₹1.25 crore
- Step 3: Subtract ₹15 lakh savings = ₹1.1 crore recommended cover
That’s the number he should look for when buying term insurance in 2025.
Before you finalize your ideal sum assured, make sure you’re also aware of 5 hidden costs you must check before buying a term plan — so your budget doesn’t get unexpectedly stretched.
Why This Matters in 2025
With term insurance rates slowly rising due to medical inflation and claim risks, it’s smart to lock in a high sum assured early. The older you get, the more expensive it becomes.
Also, with families depending on single or dual incomes more than ever, the financial gap after death can derail everything — kids’ studies, home EMIs, future dreams.
So don’t pick a cover just because someone said “₹1 crore is enough.” Do the math. Be prepared.
Use this 3-step method once a year or when your life changes — like marriage, baby, buying a house, or changing jobs. Your term cover needs will change with your responsibilities.
And remember — term insurance isn’t about death. It’s about protecting life… for the people who depend on you.
