Purab, a 35-year-old product manager in Noida, was happy when he bought a Rs. 50 lakh term insurance policy. His agent said that amount should be enough. His senior at work also said he had around the same amount, and the premium was within Purab’s budget. He felt at peace knowing his family was “covered”.
Four years later, when doing a financial review with his wife, Purab discovered that his term plan did not feel adequate. He and his wife debated the practicality of the proposal. He had a reasonable question: if something happened to him tomorrow, how long would that Rs. 50 lakh cover his family? Given their present spending, that sum would barely cover seven years. His two children’s education, his wife’s requirements, the mortgage, inflation, none of it had been included in that confident amount he’d picked.
Purab isn’t alone. Most Indian families are walking around with life insurance coverage that feels sufficient but crumbles under basic arithmetic.
The emotional math that fails us
When it comes to life insurance, at times we don’t calculate; we assume. And our assumptions are shaped by surprisingly unscientific factors like: “My friend has Rs. 50 lakhs, so I should get that too.”
Social benchmarking gives us a sense of comfort, but your friend’s financial responsibilities might be very different from yours. They could be staying in a pre-owned home while you are paying EMIs on yours. Their parents might be financially settled while you’re supporting yours. Their kids could be studying in government schools while yours attend international ones.
Considering your assumption of getting a “fair amount” based on your friend’s insurance cover, your life cover doesn’t seem enough or fair anymore.
What happens when coverage falls short
Let us return to Purab’s Rs. 50 lakh cover. Here’s what would really happen in case of his demise:
After paying off his outstanding home loan of Rs. 30 lakh, the balance is Rs. 20 lakh. Taking into account inflation in education costs, after 15 years, his children’s education costs rise to over Rs. 40 lakh. For a span of 20 years, his wife’s living expenses, medical needs, and domestic maintenance costs would be an additional Rs. 30-40 lakh, according to conservative estimates.
The total amount needed by Purab’s family is around Rs. 70-80 lakh. The available amount is Rs. 20 lakh after paying off the home loan.
His family would face difficult choices within a few years. They would be forced to compromise on education quality, their savings and investments meant for other goals will be used up, they will have to depend on relatives, and undergo financial and emotional duress. This isn’t about worst-case catastrophic scenarios. It is basic, predictable mathematics.
The income replacement method: a clearer path
Financial planners globally use a simple principle: life insurance should replace your income for the years your family would have depended on it.
Here’s how you can calculate your actual coverage requirements:
Estimate Yearly Income Replacement
Multiply your present yearly salary (say, Rs. 12 lakh) by the number of years until either your youngest child obtains financial independence or your spouse reaches retirement age, whichever comes first. Assuming your youngest is under five years of age, you’ll need a minimum of 20 years of protection. That’s Rs. 12 lakh multiplied by 20, which is Rs. 2.4 crore.
Step 2: Make a Note of Your Financial Obligations (Loans)
Home loan EMI: Rs. 50 lakhs
Car loan: Rs. 5 lakhs
Kid’s education fund: Rs. 45 lakhs
Total obligations: Rs. 1 crore
Step 3: Count Your Assets
Estimated savings and investments: Rs. 35 lakhs
Current Life insurance coverage: Rs. 50 lakhs
Total Assets: Rs. 85 lakhs
Based on these numbers, your actual coverage should be your estimated income replacement + your financial obligations – your assets. That would be Rs. 2.4 crore + Rs. 1 crore – Rs. 85 lakhs = Rs. 2.55 crores.
The idea of showcasing these numbers is not to create panic. This is about making sure that your loved ones may keep living the way they are, accomplish what they have set out to do, and become financially independent even if you aren’t around.
Adjusting for your situation
Here is how you can come to a conclusion about your insurance amount
• If you’re the sole earner: Calculate the entire required amount. Your income is the only thing standing between your family and financial hardship.
• If you have a working spouse: You might reduce the coverage slightly, but don’t assume their income will remain stable. Career breaks, caregiving responsibilities, and the emotional toll of loss can all impact earning capacity.
• If your parents depend on you: Add 10-15 years of their support costs to your calculation.
• If you have significant assets: You can reduce coverage by liquid investments (not real estate or locked-in retirement funds that your family can’t easily access).
The inflation reality
One crucial factor most people miss: a rupee today won’t be worth a rupee in ten years. With average inflation at 6-7%, Rs. 50 lakh today will have the purchasing power of roughly Rs. 25 lakh in 10 years. This is why your coverage amount needs to be higher than what simple multiplication suggests, and why you should review and increase it every 5-7 years.
Making it affordable
At first glance, Rs. 2.55 crores may sound expensive. But term insurance in India is remarkably affordable when you’re young and healthy. A 35-year-old non-smoker can get Rs. 1 crore coverage for approximately Rs. 12,000 15,000 annually. That’s Rs. 1,000-1,200 per month for meaningful financial security.
Of course, the earlier you buy, the lower your premium remains for the entire policy term. Waiting five years could increase your premium by 30-40%, and developing any health condition could make insurance prohibitively expensive or even unavailable.
Beyond the number
Adequate coverage isn’t just about math; it’s about financial dignity and choice. It’s ensuring your children’s education doesn’t depend on your relatives’ generosity. It’s giving your spouse time to grieve without immediate financial panic. It’s preserving the future you’d envisioned for your family, even if you’re not there to provide it directly.
The question isn’t “How much coverage can I afford?” The question is “What does my family actually need?” and then making that coverage a non-negotiable priority in your budget.
Purab recalculated. He increased his coverage to Rs. 2 crore with an additional Rs. 1.5 crore policy. His monthly premium increased by Rs. 2,500. He adjusted by cutting back on one monthly dinner out and an unused OTT subscription. A small price but enormous piece of mind.
It’s now time you calculate your actual coverage using the income replacement method. If there’s a gap between what you have and what you need, speak with a financial advisor or use online term insurance calculators to understand your options. Your family’s financial security is too important to leave to guesswork.
