🛡️ Insurance6 min read

Term Insurance: How Much Coverage Do You Actually Need?

The "10x salary" rule is outdated. Here's a better way to calculate your actual coverage need.

Term Insurance: How Much Coverage Do You Actually Need?

The "10x salary" rule is outdated. Here's a better way.

The Income Replacement Method

Step 1: Calculate annual expenses your family needs (not income, expenses)

Step 2: Subtract any guaranteed income (spouse salary, rental income)

Step 3: Multiply gap by years until youngest child is independent

Step 4: Add outstanding liabilities (home loan, other debts)

Step 5: Subtract existing investments

Example Calculation

  • Family annual expenses: ₹8L
  • Spouse income: ₹3L
  • Gap: ₹5L per year
  • Years needed: 20 years
  • Corpus needed: ₹1 Cr (at 5% withdrawal rate)
  • Home loan outstanding: ₹30L
  • Existing investments: ₹20L

Coverage needed: ₹1.1 Cr

When to Reduce Coverage

  • Children become independent
  • Spouse income increases significantly
  • Investments grow substantially
  • Liabilities paid off

Review coverage every 5 years. Life changes, insurance should too.