How much Life Insurance cover does one need?

Do you think your investments are enough to support you in your retirement? Is your life insurance plan cover enough for your family? There are a lot of confusions surrounding this matter. Different insurance agents in Surat will give different advices with relation to life insurance, health insurance, fire insurance etc., some contradicting each other, some very vague.


In Surat, especially, this confusion has caused the majority to take insurances very lightly and doing investments without full knowledge. In fact, only 24% of urban Indians have term insurance. This makes India one of the most underinsured countries in Asia Pacific region.


Even with people having life insurance the cover may not be enough. There are various thumb rules available in market to calculate the optimum amount of Life cover that an individual requires. Among them one of the rule suggests that an individual should have a life cover equal to 20 times of his annual income.


So here,


Optimum Life Insurance Cover = 20 × Annual Income


The logic behind this rule is, the family of the insured should be able to receive a cash flow equivalent to his current income by investing the amount received even in basic investment instruments such as FD. Consider the following illustration:



This simple calculation seems perfect until you add practical challenges like inflation to the picture. Another rule suggests taking annual expenses as the base for calculating required sum assured. As per the rule, Insurance cover should equal 12-15 times of current annual family expenses. But even this rule fails to consider future needs of the family like child education or marriage.


The major problem with presumptions is that:

  • Sometimes big figures delude you into thinking they are more than enough. For example, an amount of Rs. 1 Crore generally seems to be an adequate cover but in reality, considering the size of the family and their lifestyle it may hardly be enough.
  • Also, one has to see if there is a second income in the family. For families with both partners having an active income the need for a life cover is reduced.



Human Life Value (HLV) is a matrix prepared by experts based on the age and current income level of an individual. This calculation results in a multiplier factor, which when multiplied by current income gives you an approximate life cover required. But determining required life cover is not an independent decision. An individual should consider all his existing investments and assets along with the following factors before making a decision:


  • Age of the person
  • Number of dependent people
  • Current income/expenses
  • Years left for retirement
  • Future needs of family (like child education or marriage)
  • Current assets and investments
  • Existing life cover
  • Inflation


With the guidance of a Professional Financial planner you can evaluate the amount of funds required to fulfil your various life goals. Investments in appropriate asset classes as per individual’s risk appetite can be determined and a complete financial plan can be made. This financial plan will help you to choose an appropriate life cover that will not just be adequate based on current situation but for your future needs as well.






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Torin Wealth Management, G1-B, International Trade Center, Majura Gate, Surat - 395002.


Phone: 0261 4041122