Ask five different people how much life insurance you need, and you'll get five different rules of thumb — 10x your salary, 15x, "enough to cover your home loan." Most of these are too simple to be genuinely useful for your specific situation.
Why simple multiples fall short
Two people earning the same salary can have wildly different insurance needs. One might have no debt, a working spouse, and grown children — the other might have a large home loan, young kids with two decades of education ahead, and be the sole earner. A flat "10x income" rule treats both cases identically, which makes no sense.
A more accurate method: Human Life Value
This approach adds up what your family would actually need to replace, rather than applying a blanket multiple:
- Income replacement: your annual income × the number of years your family would need support
- Plus outstanding debts: home loan, car loan, personal loans — so your family isn't left with debt obligations
- Plus future goals: children's education, marriage, or other planned major expenses
- Minus existing savings and investments: your family wouldn't be starting from zero if you already have a financial cushion
- Minus any existing life cover: so you're only calculating the additional cover needed
Term insurance vs. investment-linked plans
Once you know how much cover you need, the next decision is what kind of policy to buy it through. Pure term insurance gives far more life cover per rupee of premium than endowment or investment-linked plans, since none of your premium goes toward building a savings component — it's purely protection. Many financial planners recommend buying adequate term cover cheaply, then investing the difference separately rather than paying for cover and investment bundled together at a much higher cost per rupee of protection.
When to revisit this number
Your insurance need isn't static — recalculate after taking a new loan, having a child, a significant salary change, or roughly every 3-5 years even without a major life event, since your goals and debts naturally evolve.