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How Much Cover Should I Take In A Term Plan?


Choosing the right cover in a term plan is critical for anyone looking to secure their family’s financial future. In India, where life insurance is increasingly seen as essential, understanding how much coverage is adequate can be daunting. This blog will guide you through determining the right amount of cover for your term plan, ensuring you make a well-informed decision.

Understanding Term Insurance

Term insurance is a life insurance policy that covers a specified period. If the policyholder passes away during this period, their beneficiaries receive the death benefit. Choosing the right coverage amount is essential to ensure your family’s financial needs are met without overburdening you with premiums.

Key Aspects to Consider:

To ensure you choose the most suitable cover for your term plan, let’s explore some key aspects to consider:

  • Current Income and Expenses

It’s essential to consider your current income and regular expenses. The rule of thumb is that your cover should be around 10-15 times your annual income. This ensures that in case of any unfortunate event, your family can maintain their current lifestyle and meet daily expenses without financial strain.

For instance, if your annual income is ₹10 lakh, a suitable cover would be between ₹1 crore to ₹1.5 crores.

  • Future Financial Obligations

Think about future financial commitments like your children’s education, marriage, or your partner’s retirement needs. Investigating these expenses ensures your insurance coverage caters to future requirements.

  • Debts and Liabilities

If you have any loans or debts, such as a home or car loan, ensure your insurance coverage is sufficient to pay off these liabilities. This will prevent your family from bearing the financial burden of these debts in your absence.

  • Inflation

Inflation diminishes the value of money over time. When choosing your cover amount, consider the impact of inflation to ensure that the future value of the insurance cover is adequate.

For example, with an average inflation rate of 6%, ₹1 crore today may be equivalent to around ₹3.2 crore in 20 years. Hence, adjust your cover accordingly.

Factors Impacting Premiums

Understanding the premiums of your term plan is crucial, and several factors come into play in determining these costs:

  • Age: Age is a primary factor in determining the premium for a term plan. Generally, the younger you are, the lower the premium. This is because insurance companies view younger applicants as lower risk, given the lower probability of health issues and mortality at a younger age.
  • Health: Your current health status significantly influences premium costs. Healthier individuals without pre-existing conditions often enjoy more favourable premium rates.
  • Lifestyle Choices: Lifestyle choices such as smoking, excessive alcohol consumption, or engaging in high-risk activities can increase your insurance premiums. These habits are linked to higher health risks and potentially shorter life expectancy, which insurers take into account.
  • Occupation: The nature of your occupation can also impact your term insurance premiums. Jobs that are considered high-risk, such as working in hazardous environments or involving heavy physical labour, can lead to higher premium rates.
  • Policy Term and Cover Amount: Longer policy terms and higher cover amounts typically result in higher premiums. This is because the insurer is taking on a greater risk over a longer period and for a larger payout.

Using a Term Plan Calculator can help you understand how these factors collectively impact your premium. By entering details like age, health, lifestyle choices, occupation, desired coverage, and policy term, the calculator provides an estimated premium, allowing for a more informed and tailored insurance decision.

Benefits of Adequate Cover

The benefits of having adequate cover in your term plan are manifold, impacting both your financial security and peace of mind:

  • Financial Security for Family

Adequate cover in a term plan ensures that your family’s financial needs are well taken care of in the event of your untimely demise. This coverage can help maintain their current standard of living, cover day-to-day expenses, and ensure that any future financial goals, such as children’s education or spouse’s retirement, are not compromised.

  • Debt Repayment

A sufficient cover amount can provide the necessary funds to pay off outstanding debts such as home loans, car loans, or personal loans. This is crucial in ensuring that your family does not bear the burden of these liabilities and can live debt-free after your demise.

  • Legacy Planning

Adequate life cover can also act as a tool for legacy planning. It ensures that your loved ones are not just financially secure but can also receive a sum of money that can be used to fulfil your wishes or continue your legacy, be it through charitable acts, business investments, or supporting a cause you are passionate about.

  • Coping with Inflation

With an adequate cover, you can also factor in the impact of inflation over the years. This ensures that the sum assured does not decrease over time, maintaining its financial significance even years into the future.


Determining the right cover in a term plan is a balance between your current financial status, future needs, and potential inflation. Tools like a term plan calculator can provide a starting point, but consider your unique circumstances for the best decision. Remember, the right cover is not just about paying the premiums; it’s about ensuring your loved ones’ financial security and peace of mind.

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