How much insurance cover do I need

For most people, purchasing a life insurance policy is a smart move for ensuring financial coverage for family and loved ones. How much life insurance you need will vary based on personal and financial circumstances, but essentially it should be enough to cover your dependents' expenses, including future ones.

Factors that help you in analyzing insurance cover you need

Your Current Annual Income

 It is the first and foremost factor that needs to be considered in the process of deciding your life insurance cover. According to a thumb rule to decide the life cover, it should be 10 times the annual income. But the rising cost and high inflation say that you opt for at least 20 times your annual income.


In case, your present income Rs 5 Lakh annually, then you must opt for a life insurance policy that offers a cover-up to Rs 1 Crore. This amount would be a great help to your family to cover their annual expenses and maintain their standard of living in your absence.

Analyze your present and future financial liabilities

Your financial liabilities like outstanding debts and loans are also considered at the time of choosing the sum assured of your life insurance cover. In case, you die at an early age, your family may have to face a tough time in managing your EMIs along with other household expenses, especially if you were the sole breadwinner. Thus, always ensure that the coverage is large enough to meet all your existing liabilities.

All those financial assets that are liquid or near to liquid may also help your family to meet the liabilities. For instance, any kind of bank deposits,  investments made in stocks, or mutual funds. You can, therefore, calculate the approximate market value of these assets into account while calculating your required coverage and reduce it accordingly.

Decide your financial goals

Your financial goals play an important role in deciding the cover. The whole point of purchasing insurance is to help your family in maintaining the lifestyle you provided for them in case you die at an early age. It includes expenses such as a child’s education and their marriage which require a considerable amount of money.

Age at which you are buying an insurance policy

The age at which purchase policy also decides your insurance coverage because there are different requirements at different phases of life. That is why it is a must to review a life insurance policy periodically. 

The thumb-rules for choosing a life cover for different age groups are explained below:

25-35 years(Approx. 18 x Current annual income) + outstanding loans
35-45 years(Approx. 15 x Current annual income) + outstanding loans
45-55 years(Approx. 10 x Current annual income) + outstanding loans

Getting the right cover is not rocket science.  With the help of online calculators, you can easily find the cover you need once after deciding your goals and understanding your requirements. An average buyer aged 30-35 years can avail of an Rs. 1 Crore policy for an annual premium of Rs. 10,000 to Rs. 12,000.