Insurance

How Much Life Insurance Do You Actually Need? A Simple Way to Calculate It.

Most people are under-insured. Not because they cannot afford it. Because nobody showed them how to calculate the right number.

By FinAxis Team
How Much Life Insurance Do You Actually Need? A Simple Way to Calculate It.

Most people pick a life insurance sum assured the same way they pick a lucky number — somewhat randomly. ₹25 lakhs because that is what the agent suggested. ₹50 lakhs because it sounded substantial. ₹1 crore because it was the cheapest round number available.

None of these is a plan. Let us build one.

The Human Life Value method — simplified

The most practical way to calculate life insurance need is to ask: if I were not here, how much money would my family need — to maintain their lifestyle, repay obligations, fund future goals, and replace my income — until they no longer need to rely on mine?

Here is a simple framework:

01
Replace your income Calculate how many years your family needs income support. Typically until the youngest child is financially independent — often 20–25 years. Multiply your current annual income by that number. This gives the income replacement figure.
02
Add all outstanding liabilities Home loan. Car loan. Business loan. Any other outstanding debt. If you are not here, these do not disappear — your family inherits them. Add the full outstanding principal of every loan.
03
Add future goal funding Children's education. A daughter's wedding. A son starting a business. What big financial events does your family need money for — that your income was supposed to fund? Estimate and add these.
04
Subtract existing assets Existing investments, fixed deposits, EPF balance, and any other liquid assets that the family could use. Subtract these from the total.
HERE'S A THOUGHT

A 35-year-old earning ₹15 lakhs per year with a ₹50 lakh home loan, two children, and a 25-year income replacement need has a minimum life insurance requirement of roughly ₹3.5–4 crore. Most people in that profile have ₹50 lakhs to ₹1 crore of cover. The gap is not a minor oversight. It is a family-level financial risk.

A quick check — are you under-insured?

A commonly used rule of thumb is 10 to 15 times your annual income as a minimum sum assured. For someone earning ₹10 lakhs a year, that is ₹1–1.5 crore. For ₹20 lakhs a year, that is ₹2–3 crore. If your current cover is below this range, the gap is worth addressing — immediately.

And the good news: at current term insurance pricing in India, closing that gap costs far less than most people expect. ₹1 crore of term cover for a 35-year-old costs approximately ₹8,000–₹12,000 per year. For ₹3 crore of cover — still under ₹25,000 per year.

THE BOTTOM LINE

The right number is not a round number. It is a calculated number — based on your income, your liabilities, your goals, and your family's actual needs. Calculate it once. Review it every 3–5 years as your life changes. That is all it takes.

Have a question about your finances?

FinAxis helps individuals and businesses across India with loans, working capital, wealth & insurance.

Talk to an expert
Back to all articles