How much term insurance do I need?
Short answer. Enough to replace the income your family would lose, clear every loan and fund the big goals — minus the investments and life cover you already have. For many people in their thirties that lands near the popular 15–20 times annual income, but the right multiple falls with age and rises with loans. Calculate it; do not guess.
How much term insurance should I take: the 15–20x rule or a calculation?
The rule of thumb — 15 to 20 times your annual income — is quick, and better than nothing. But it sees only your salary. It ignores your age, loans, goals and the money you have already built up, so two people on the same salary can need very different cover.
The income-replacement method asks a better question: what lump sum, invested safely, would pay my family a rising income for as long as they would have depended on me?
What is the income-replacement formula?
Cover for income = P × [1 − ((1 + g) ÷ (1 + r))n] ÷ (r − g)
- P — the income your family needs in the first year. Take your annual take-home pay and keep 60–75% of it, because your own expenses stop.
- g — the rate at which your income would have grown.
- r — the return your family can earn on the payout. Keep it cautious; this is money they cannot afford to lose.
- n — the years your family depends on your income, usually until you would have retired.
This is the present value of a growing income stream, with the first payment a year from now — the same maths our calculator uses. Then add every outstanding loan and the big goals at today's cost, and subtract investments your family could actually use and any life cover you already hold. Leave out the home you live in; your family still needs it. Count employer group cover with caution, because it ends when the job does.
A worked example
Age 35, take-home income of ₹15 lakh a year, family dependent until 60 — that is 25 years. Assumed: the family needs 70% of the income, income growth of 6% a year and a return of 7% a year on the payout.
| Item | Amount |
|---|---|
| First-year need: ₹15 lakh × 70% | ₹10.5 lakh |
| Income replacement for 25 years (formula above) | ₹2.20 crore |
| Add: home loan outstanding | ₹40 lakh |
| Add: children's education, at today's cost | ₹30 lakh |
| Total the family needs | ₹2.90 crore |
| Less: investments ₹25 lakh + existing cover ₹15 lakh | ₹40 lakh |
| Term cover to consider | ₹2.50 crore |
Working: (1.06 ÷ 1.07)25 = 0.7908, and 1 − 0.7908 = 0.2092. ₹10.5 lakh ÷ (0.07 − 0.06) = ₹10.5 crore; × 0.2092 = ₹2.20 crore. The growth rate and the return are assumptions, not forecasts.
The rule of thumb gives ₹2.25–3 crore for this person, so here it lands in the right range. Change the age or the loan and the two part ways.
Why does the right multiple fall with age?
| Years your family depends on your income | Income replacement, as a multiple of take-home income* |
|---|---|
| 30 years | 17.2× |
| 25 years | 14.6× |
| 20 years | 12.0× |
| 15 years | 9.2× |
| 10 years | 6.3× |
*70% of income, 6% growth, 7% return. Add loans and goals; subtract assets and existing cover.
A 50-year-old with ten working years left needs about six times income plus loans; 20 times would be cover nobody needs. A 30-year-old with a large home loan may need more than 20 times.
Till what age should the cover run?
Until nobody depends on your income and your loans are repaid — for most people, the planned retirement age of 60 to 65. By then your investments should do the job the policy did. Cover running to 85 or 99 costs more, for a risk your family no longer carries.
Premiums are fixed at purchase and are lower when you are younger and healthier, so waiting has a price. Declare every health condition, habit and existing policy truthfully in the proposal form; a claim is only as strong as that form. IRDAI's annual report publishes each life insurer's claim record.
Which riders are worth knowing?
- Accidental death benefit: an extra payout if death is accidental.
- Critical illness: a lump sum on diagnosis of a listed illness. Lists and definitions differ widely.
- Waiver of premium: future premiums are waived after disability or critical illness, and the cover continues.
- Terminal illness: often built in; part of the cover is paid early.
A rider ends when the base policy ends, and its cover is usually capped. Compare cost and wording with a standalone policy first.
Pure term or return of premium?
A return-of-premium plan refunds your premiums if you outlive the policy, and charges more for it. The arithmetic, with assumed premiums that are illustrations and not quotes: pure term at ₹15,000 a year, return of premium at ₹30,000 a year, for 30 years. The second plan refunds ₹9 lakh. The extra ₹15,000 a year, invested at an assumed 7%, would grow to about ₹15.2 lakh — so the refund is worth roughly 4.2% a year on the extra premium. Run the same sum on real quotes.
What we earn from this
Nothing. Astra Wealthcraft Advisory LLP sells no insurance and earns no commission or referral fee from any insurer — which is also why this article names no insurer or policy. It is general education, not a recommendation.
FAQ
How much term insurance do I need on a salary of ₹10 lakh?
How much term insurance can I get?
How much GST is there on term insurance?
Is term insurance worth it if I get nothing back?
Sources: Department of Financial Services — GST exemption; Business Standard — effect on premiums; IRDAI — annual reports; method as in our term insurance calculator. All checked 19 Sep 2026.
Education only. This article does not recommend any product and is not investment advice. Spotted an error or have a question about the method? Write to us.
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