How Much Life Insurance Cover Do You Actually Need?

After 31 years of reviewing insurance portfolios, the question I am asked most often is: 'How much cover do I actually need?' I have seen people with ₹50 lakh cover on a ₹15 lakh annual income (underinsured) and people with ₹5 crore cover who earn ₹8 lakh per year (overinsured and paying unnecessary premiums). Getting this number right is one of the most valuable things an advisor does.

The most commonly used method is the Human Life Value (HLV) approach. The idea is simple: your life insurance should replace the income your family would lose if you were not there. The calculation: multiply your current annual income by the number of years until you plan to retire, and adjust for a modest inflation factor.

For most people, the simplified formula is: Annual Income × 10 to 15. A person earning ₹6 lakh per year should have ₹60 lakh to ₹90 lakh in cover. Earning ₹12 lakh? You need ₹1.2 crore to ₹1.8 crore.

But the HLV alone is not enough. You also need to account for specific liabilities and goals. Outstanding home loan: add the full outstanding amount to your cover. Outstanding other loans: add these too. Children's education: estimate the cost of higher education at today's prices (typically ₹10 to ₹30 lakh per child, depending on field). Marriage corpus: ₹10 to ₹25 lakh per child if relevant.

Then subtract: existing investments and savings (FDs, PPF, mutual funds) that your family could liquidate, and any existing life insurance you already have.

The result is your Net Insurance Need. This is the gap between what your family needs and what they currently have.

A practical example: 35-year-old earning ₹8 lakh per year. HLV: ₹80 lakh to ₹1.2 crore. Outstanding home loan: ₹25 lakh. Two children, education needs: ₹30 lakh. Existing savings: ₹8 lakh. Existing insurance: ₹15 lakh. Net need: ₹80 lakh + ₹25 lakh + ₹30 lakh - ₹8 lakh - ₹15 lakh = approximately ₹1.12 crore. Round up to ₹1.25 crore for a clean number.

Do this calculation every 3 to 5 years, or whenever your income, loans, or family situation changes significantly. Call me at 9415313434 and I will do this calculation for you in 10 minutes, free.