How much life insurance do I need?
Short answer
Enough for your family to keep living as they do now, clear your loans and reach big goals like your children's education, if you weren't there to earn. A quick way to estimate it: add up those needs, then subtract the savings and life cover you already have. For many earning parents, the answer lands around 10 to 15 times their yearly income.
- Life cover is about what your family would need, not what premium feels comfortable.
- Add up living costs, loans and goals, then subtract savings and existing cover.
- Company life cover usually ends when you leave the job.
- Review your cover after big life events: marriage, a child, a home loan
Who is this article for?
Anyone who earns money that others depend on: a spouse, children, parents, or someone sharing a loan with you. If nobody depends on your income and you have no loans, you may need little or no life cover.
What is life insurance meant to do?
Life insurance replaces your income for your family if you die. It should let them pay the bills, clear debts and still reach the goals you planned together, without selling the house or depending on relatives.
Is there a quick rule of thumb?
A common shortcut is 10 to 15 times your yearly income. It is a fair starting point, but it ignores your loans, savings and family situation. Two people earning the same can need very different covers. The method below gives a better number.
How do I work out my own number?
Add up what your family would need:
- Living costs: your family's yearly expenses (not counting your own) × the number of years they'd need support, usually until your youngest child is independent or your spouse retires.
- Loans: everything outstanding: home loan, car loan, personal loans.
- Big goals: children's education and marriage, or support for your parents.
Then subtract what they would already have:
- Savings and investments: fixed deposits, mutual funds, PF and similar.
- Existing life cover: policies you already hold. Count company cover only if you expect to stay in that job.
Life cover needed = (1 + 2 + 3) − (4 + 5)
This simple version assumes your family's savings will grow at roughly the same pace as prices rise, so we don't add inflation or investment returns separately.
What does this look like for a real family?
Arjun is 35, lives in Mumbai and earns ₹18 lakh a year. His wife works part-time; they have two children, aged 4 and 7.
| What the family would need | Amount |
|---|---|
| Living costs: ₹9 lakh a year × 20 years | ₹1.8 crore |
| Home loan outstanding | ₹40 lakh |
| Children's education goal | ₹30 lakh |
| Total needs | ₹2.5 crore |
| Minus savings and investments | − ₹15 lakh |
| Minus existing life cover | − ₹25 lakh |
| Life cover needed | ₹2.1 crore |
₹2.1 crore is about 12 times Arjun's income, close to the rule of thumb, but now he knows why.
How long should the cover last?
Long enough to cover the years your family depends on your income, typically until your planned retirement or until your youngest child is financially independent. Cover that runs well past that age usually costs more without adding much protection.
Which type of life insurance gives a large cover?
Term insurance pays only if you die during the policy term, so it can give a large cover for a relatively low premium. Endowment, money-back and ULIP plans combine cover with savings or investment, so the same premium buys a much smaller sum assured. When you count existing cover in step 5, use each policy's sum assured, not the premium or maturity value.
Common mistakes to avoid
- Relying only on company cover: it usually ends on your last working day.
- Forgetting the loans: your family inherits the EMIs if the loan isn't covered.
- Never reviewing it: a cover that fit at 28 may be far too small after a child and a home loan.
- Not telling your nominee: a policy your family doesn't know about can't help them.
- Hiding health details on the form: honest disclosure protects the claim later.
Know exactly what cover your family has
Policy Iris brings all your family's policies into one place and shows the total cover in plain language, so you can see the gap clearly. Independent, no commission, privacy-first. Join the beta waitlist at policyiris.com.
This is general information, not advice to buy or change any policy. The example is illustrative.
Questions people ask
Q1: Is 10 times my income enough life insurance?
A: It can be a starting point, but your loans, savings and family situation can push the right number much higher or lower. Work it out with the needs-based method.
Q2: Do I need life insurance if I'm single?
A: If nobody depends on your income and you have no shared loans, you may need little or none. If you support parents or siblings, you do.
Q3: Should a homemaker have life cover?
A: A homemaker's work has real value: childcare, cooking and running the home would cost money to replace. Families often consider some cover for that reason.
Q4: Does my company's group life cover count?
A: Only while you work there. It usually ends when you change jobs or retire, so many people don't count it as their main cover.
Sources
Abhijit Pal, FIAI, FIA
Founder and actuarial reviewer
About 20 years as an actuary in life and health insurance and reinsurance
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