Why Adequate Coverage Matters

Term life insurance provides a financial safety net for your dependents if you were to pass away unexpectedly. Having adequate coverage ensures that your family can:

• Maintain their current lifestyle without financial hardship.
• Pay off outstanding debts (home loan, car loan, personal loans).
• Fund long-term goals like children's education or marriage.
• Cover daily living expenses and manage inflation.

Underinsuring can leave your family vulnerable, while overinsuring can lead to unnecessarily high premiums.

The 10-20x Annual Income Rule

A common starting point for estimating term insurance coverage is the "10 to 20 times your current annual income" rule.

Coverage = Your Annual Income × (10 to 20)

For example, if your annual income is ₹10 lakhs:

• Minimum suggested cover: ₹10 lakhs × 10 = ₹1 crore
• Maximum suggested cover: ₹10 lakhs × 20 = ₹2 crores

Younger individuals with more working years ahead and more dependents might lean towards the higher end (15-20x), while those closer to retirement or with fewer financial responsibilities might opt for the lower end (10-15x).

Factoring in Liabilities and Goals

A more comprehensive approach involves considering your specific financial obligations and future goals:

• Outstanding Debts: Add up all your loans (home, car, personal, credit card dues). Your insurance should cover these.
• Future Goals for Dependents: Estimate costs for children's education, marriage, or other significant future expenses.
• Income Replacement: Calculate how much income your family would need annually and for how many years.
• Existing Savings & Investments: Subtract any existing assets that can be used by your family from the total required corpus.
• Retirement Corpus for Spouse: If applicable, consider an amount that could help your spouse build a retirement fund.

This method, often called the "Need-Based Analysis" or "Human Life Value (HLV)", provides a more personalized coverage amount.

Age and Life Stage Considerations

• Young & Unmarried: May need lower cover, primarily for clearing debts or supporting aging parents.
• Married, No Children: Cover for spouse's living expenses, debts, and future goals.
• Married with Young Children: Highest need, to cover long-term expenses, education, and replace income for many years.
• Nearing Retirement: Coverage needs may decrease if children are independent and major loans are paid off. Focus might shift to legacy planning.

Riders to Consider

Riders are add-ons to your base term insurance policy that provide additional benefits for specific situations, usually at an extra cost:

• Accidental Death Benefit Rider: Provides an additional sum assured if death occurs due to an accident.
• Critical Illness Rider: Pays a lump sum on diagnosis of specified critical illnesses. This can help cover treatment costs.
• Waiver of Premium Rider: Waives future premiums if the policyholder becomes permanently disabled or diagnosed with a critical illness (as per policy terms).
• Accidental Disability Rider: Provides a payout in case of permanent total or partial disability due to an accident.

Evaluate riders based on your lifestyle, family medical history, and budget.