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Hence, choosing a right life cover is as important as choosing a right term insurance plan.
That's where a simple formula helps: Income x Income multiple. This method ensures your coverage matches your financial needs. So, now there is a sufficient security for your loved ones when it matters the most.
Calculate the right term insurance coverage
There's no universal number for term insurance coverage because everyone's financial responsibilities differ. A widely accepted approach is the Annual Income x Income multiple formula. Here's how it works.
If you're in your 20s or early 30s: Your coverage should be 20-25X your annual income. This accounts for future salary growth and financial goals.
If in your 40s: You should aim for at least 15-20X your income to cover dependents' needs.
If in your 50s: A 10-15X multiple is usually enough, as major expenses (home loan, children's education etc.) may already be covered.
Let's explain with an example. Mahesh, a private sector employee, earns ₹10 lakh per year. He is in his 30s and is married. So, his ideal term plan coverage would be ₹10 lakh x 20/25 = ₹2-2.5 crore
By using this approach, Mahesh will ensure his family can maintain their lifestyle and meet major expenses like education, home loans, and daily living costs even in his untimely absence.
Factors influencing your term cover needs
While the Income x Income multiple formula gives a strong estimate, your ideal insurance coverage also depends on personal circumstances. Here are key factors to consider as you sit down to calculate.
1. Your family's lifestyle and expenses
Think beyond basic survival. Your family should maintain the same standard of living even if you're not around. Factor in rent or home loan EMIs, monthly recurring expenses, healthcare, and any other financial commitments.
2. Outstanding loans
A home loan, car loan, or personal debt shouldn't become a burden for your family. Your term insurance cover should be enough to clear these liabilities at one go.
3. Children's future goals
If you have young children, their education costs need to be secured. A professional degree can cost anywhere from ₹10 lakh to ₹1 crore, depending on the field and university.
4. Inflation
Bear mind that what seems like a large sum today may not be enough 20 years later. A coverage of ₹1 crore today won't have the same value in the future due to inflation. That's why a coverage with inflation factored in is recommended.
5. Other sources of income
If your family has additional income sources such as rental income, business earnings, or investments, then you may not need an extremely high coverage. However, if they rely solely on your income, a larger insurance coverage is essential.
These factors are important to understand. If taken into account properly, your term plan can provide real financial security, not just a random number.
Should you buy multiple term plans
Most people assume one term insurance policy is enough. But depending on your financial situation, splitting coverage across multiple plans can be a smart move.
Buying multiple term insurance plans can offer greater financial flexibility and security. As your responsibilities evolve, committing to one large policy may not always be the best approach. Instead, purchasing plans at different life stages can help. For instance, opting for a ₹1 crore policy in your 30s and adding another ₹1 crore in your 40s ensures that your insurance coverage adapts to your changing needs.
Managing premium payments also becomes easier with multiple plans. Since insurance premiums rise with age, locking in all your coverage at once might mean paying higher costs.
By purchasing policies in phases, you can balance affordability while maintaining adequate coverage.
Moreover, having multiple policies allows beneficiaries to receive payouts at different times means that funds can be available over a longer period rather than as a single lump sum.
While buying multiple insurance coverage plans makes sense for many, managing them requires discipline. Make a system to track premium due dates and update nominees across all policies.
Don't wait, do it today
A well-planned insurance coverage means your loved ones won't have to make tough financial choices during an already difficult time. Whether it's covering daily expenses, funding your child's education, or keeping a home loan from becoming a burden, the right coverage is what stands between stability and struggle.
The best time to make this decision is today. Assess your financial needs, use the Income x Income multiple formula and any other factor to zero in on an adequate cover and find out the premium using the term insurance calculator. If required, consider multiple policies for added security. Because at the end of the day, term insurance isn't just about numbers. It's really about protecting your family's tomorrow as much as it is today.