Term Insurance Guide: How Much Life Cover Do You Really Need?

What Is Term Insurance?

Term insurance is pure life cover — you pay a small annual premium and your nominee gets a large payout (the "sum assured") if you pass away during the policy term. Unlike endowment or ULIP plans, there is no maturity payout if you survive the term, which is exactly why premiums are dramatically lower for the same cover.

The 10-15x Income Rule

A common starting benchmark is 10-15 times your annual income. So someone earning ₹10 lakh/year would look at ₹1-1.5 crore of cover. This is a rough guide, not a hard rule — your actual dependents, existing loans, and financial goals matter more.

A More Precise Method

1. Add up all outstanding loans (home, car, personal) — this must be fully covered.
2. Add your family's annual expenses × number of years they'd need support.
3. Add future goals (children's education, marriage).
4. Subtract existing savings, investments, and any employer-provided cover.

Term Insurance vs Endowment/ULIP

For the same premium, term insurance offers 8-10x more cover than an endowment or ULIP plan, because none of your premium is diverted into investment. The common advice from most independent financial planners: buy term insurance for protection and invest the difference separately (mutual funds, PPF, etc.) rather than mixing insurance and investment in one product.

Buy early — premiums are locked in largely by your age at purchase, so a 25-year-old pays a fraction of what a 40-year-old pays for identical cover.