For most Indians buying term insurance, the decision begins and ends with a number. ₹50 lakh. ₹1 crore. ₹2 crore. These figures are often chosen because they “sound sufficient,” fit a monthly budget, or mirror
what peers and colleagues have bought.
But financial planners and insurance experts point out a growing gap between what people buy and what their families would need if their income were to stop. The result is widespread underinsurance: policies that look reassuring on paper but fall short in practice.
The problem with round numbers
The popularity of round term covers has little to do with financial planning and much to do with convenience. Many buyers anchor their decision to employer-provided life cover, agent suggestions, or online comparisons that highlight the lowest premium for a fixed amount of cover.
What often goes missing is a fundamental question: What is this insurance meant to replace?
Term insurance is not meant to clear loans alone or serve as a one-time payout. Its real purpose is to replace income and provide financial stability in times of uncertainty.
When viewed through this lens, a flat ₹1 crore cover may be insufficient for a 30-year-old earning ₹15–20 lakh annually, supporting dependents, and carrying long-term financial responsibilities like home loan, children’s education etc.
Income replacement, not prestige
A more robust way to think about term insurance is income replacement. If the insured individual were no longer around, how many years of income would the family need to maintain their lifestyle, meet daily expenses, and fund long-term goals?
Industry thumb rules typically suggest cover worth 10–15 times annual income. However, experts caution that even this range must be adjusted for personal factors such as age, number of dependents, existing assets, liabilities, and future obligations.
For example, a young salaried professional with no children may need less cover than a single-income household with school-going children and ageing parents. Conversely, a dual-income family may still require substantial cover if one income forms the backbone of household expenses or loan repayments.
The expenses people underestimate
One reason underinsurance is common is that buyers underestimate the breadth of costs their families will face over time.
Beyond outstanding loans, households must account for:
● Everyday living expenses that may stretch 20–30 years
● Children’s education and milestone expenses
● Housing costs like rent, maintenance, or pending EMIs on a home loan
● Medical inflation and healthcare contingencies
● Financial support for dependents such as parents or siblings
These are not one-time costs. They are recurring, inflation-linked expenses that continue long after immediate liabilities are cleared.
Inflation’s quiet erosion
Another frequently ignored factor is inflation. A sum assured that appears large today may lose significant purchasing power over time.
At an average inflation rate of 5–6%, the real value of ₹1 crore halves roughly every 12–14 years. This means a policy purchased in one’s early 30s may offer far less protection in one’s 50s, precisely when dependents may still rely on financial stability.
This is why term insurance may feel adequate at the time of purchase but may be not sufficient tomorrow.
Life stage matters
The amount of term insurance needed is not static. It evolves with life stages.
Early in one’s career, financial responsibilities may be limited, but the duration for which income needs to be protected is longest. As individuals marry, take on home loans, and raise children, protection needs peak. Later in life, as assets grow and liabilities reduce, the required cover may gradually decline.
This is also why buying term insurance early tends to be more cost-effective. Younger buyers lock in lower premiums for longer durations while securing protection through their highest responsibility years.
Employer cover isn’t enough
Many salaried individuals rely heavily on employer-provided group life insurance. While this can be a useful supplement, it is rarely sufficient on its own. Coverage is typically limited, linked to tenure, and lost when changing jobs, precisely during career transitions when financial stability matters most.
Relying solely on employer cover creates a false sense of security.
Reframing the decision
Ultimately, the question “How much term insurance is enough?” cannot be answered by a standard number. It requires a realistic assessment of income, responsibilities, time horizon, and inflation. Simple tools such as a term insurance calculator can help estimate the right level of cover based on family’s financial needs, while also indicating the premium required for that protection.
The smart thing to do is to revisit your coverage periodically, especially after major life events like marriage or childbirth, and to view term insurance not as an expense, but as a financial foundation that ensures continuity for those left behind.
