How much life insurance do I need for my family?
You need enough life cover to pay off your loans, fund the goals your family depends on, and replace the household expenses your income pays for, minus what you already have. This is called the needs-based method. It is more precise than a rule of thumb, because it starts from your family's actual costs.
A quick cross-check is 10 to 15 times your annual income. If the two methods give very different answers, the needs-based figure is the one to trust.
A worked example
- You are 35 and earn ₹18 lakh a year. Your spouse and a five-year-old child depend on you.
- Household expenses are ₹50,000 a month. Replacing them for 25 years, rising with an assumed 6% inflation and with the money assumed to earn 7%, needs about ₹1.34 crore today.
- The home loan outstanding is ₹40 lakh.
- Your child's degree costs ₹25 lakh today, about ₹68 lakh in 13 years at 8% education inflation. Setting money aside for it now needs about ₹28 lakh.
- Less the ₹15 lakh you already have invested.
- The cover you need is about ₹1.9 crore. The rule of thumb gives ₹1.8 to ₹2.7 crore, so the two agree.
Leave out cover from your employer when you subtract what you have. It usually ends when you change jobs, which may be exactly when your family needs it.
What kind of policy
A term plan pays only if you die during the term, and so gives the most cover for the premium. Choose a term that runs until your youngest child is independent and your loans are paid, often to around 60.
Endowment plans, money-back plans and ULIPs combine cover with investment. The life cover is usually small for the premium you pay, and the investment part carries higher costs than a mutual fund. Buying term cover and investing separately usually leaves your family better protected and your money better invested.
Should I buy insurance as part of financial planning?
Yes: insurance is the part of a financial plan that keeps the rest of it standing if something goes wrong. Without it, a death, an illness or an accident can force your family to sell investments, break deposits or take on debt.
Insurance protects the plan. It is not how you grow money. The plan works best when cover is bought as pure protection and investing is done separately.
Who needs which cover
- Term life cover: anyone whose income someone else depends on, or who has a loan another person would have to repay.
- Health cover: everyone, including children and parents. A family floater with a super top-up is a common way to get a high limit at a lower premium.
- Personal accident and disability cover: anyone whose income depends on being able to work. Disability can cost a family more than a death, because expenses continue.
Who may not need life cover
Someone single with no dependants and no shared loans, or a retiree whose investments already cover their spouse's needs, may not need life insurance at all. Health cover still matters for both.
How to do an insurance needs assessment for comprehensive planning
An insurance needs assessment lists what your household would need if an earner died or fell ill, subtracts what you already have, and treats the gap as the cover to buy. It takes an evening with your statements in front of you.
- List your dependants and how many years each will depend on your income.
- Add up yearly household expenses that would continue without you.
- List every loan: home, car, personal, and any you have guaranteed for someone else.
- List the goals your family would still need to fund: education, a wedding, a parent's care.
- List what you already have: investments, savings, and personal life cover. Leave out employer cover.
- Work out the life cover gap: expenses for the years needed, plus loans, plus goals, minus what you have.
- Check health cover: the limit, room rent limits, waiting periods for existing illnesses, co-payment, and whether your parents are covered.
- Check disability and accident cover against your income.
- Write down the nominee on every policy and make sure your family knows where the documents are.
- Repeat it when you marry, have a child, take a loan, change jobs or get a large raise.
Our money health check covers insurance alongside your emergency fund and savings, in about two minutes.
Where people get insurance advice, side by side
| Insurance agent | Insurance broker or comparison site | Bank relationship manager | SEBI registered investment adviser | Do it yourself | |
|---|---|---|---|---|---|
| Who they work for | One insurer, or a few | Several insurers | The bank and its partner insurers | You | You |
| How they are paid | Commission from the insurer | Commission or fees from insurers | The bank earns from products sold | A fee you agree in writing | No one |
| Can buy the policy for you | Yes | Yes | Yes | No: advises only | You buy directly |
| Looks at your whole plan | Rarely | Rarely | Sometimes | Yes | If you do |
| Usually suits | Someone who wants help filing claims with one insurer | Comparing premiums once you know the cover you need | Customers who value one point of contact | Insurance decided alongside goals, investments and tax | A clear need, compared and bought online |
Where we fit, and where we do not
Invsify is a SEBI registered investment adviser (INA000020572), not an insurer or an insurance seller. Invsify Private covers insurance as part of the plan, alongside goals, investments and tax, for ₹8,999 a year, fixed, with no commissions. We tell you how much cover you need and what to look for. You buy it directly.
If you already know the cover you need, a comparison site will get you quotes faster than we will. If you want someone to handle a claim with your insurer, an agent or broker is set up for that and we are not. We are most useful when you are deciding how much to insure in the same budget that pays for your goals.