Term Insurance: How Much Do You Really Need?

Most people choose term insurance the way they choose a phone plan: a round number that feels safe. ₹1 crore is the usual pick, mostly because everyone else picks it. The right amount depends on what your family would actually need if your income stopped tomorrow. This guide shows you how to work that out, what the cover costs, and what to check before you buy.

What Term Insurance Is, and What It Isn't

Term insurance is pure protection. You pay a premium every year, and if you die during the policy term, your family receives the sum assured. If you outlive the term, nothing is paid back. That is why it costs far less than endowment plans or ULIPs, which mix insurance with saving and charge you for both.

You need it if anyone depends on your income, or if someone would be left with your debts. That includes a spouse, children, or parents you support, and a co-borrower on your home loan. A single person with no loans and no dependents can often skip it.

Two facts help buyers. Since September 22, 2025, individual life insurance premiums, term plans included, carry no GST, so the 18% that used to sit on top of every premium is gone (group policies still pay it). The death benefit is also tax-free under both tax regimes, though the premium earns a Section 80C deduction of up to ₹1.5 lakh only under the old regime.

How Much Cover Do You Need?

The Quick Rules

The common shortcut is 10 to 15 times your annual income. For someone earning ₹12 lakh, that is ₹1.2 to ₹1.8 crore. It is a fair starting point, but it ignores your loans, your goals, and how many years your family would depend on you.

Insurers also use income multiples, but as a ceiling on what they will sell you, not as advice. According to the aggregator Ditto, the usual maximums fall with age:

These figures are indicative, and each insurer sets its own limits.

A Better Method: Expenses, Loans, and Goals

Work out what your family would need without you, then subtract what they already have:

Cover needed = future household expenses + loans + goals + final expenses − savings − existing cover

Future expenses are the biggest piece, and the one people underestimate, because they grow with inflation. A family that spends ₹60,000 a month today will spend about ₹7.6 lakh in the first year, and about ₹31 lakh a year by year 25, at 6% inflation.

A Worked Example

Take a 32-year-old earning ₹12 lakh a year, with a family that needs support until he turns 60. Monthly expenses are ₹60,000, and there is a ₹40 lakh home loan and ₹3 lakh of other debt. Two goals are coming: ₹40 lakh for a child's education in 12 years, and ₹15 lakh for a marriage in 18 years. Savings are ₹10 lakh, and his employer provides ₹50 lakh of cover. With 6% inflation and a 7% return on invested money, every future amount converts to today's value like this:

The 10-times rule (₹1.2 crore) would leave this family short. The employer's cover also vanishes if the job does; without it, the need rises to about ₹2.5 crore. Assumptions matter too: at a 5% return the answer is about ₹2.5 crore, and at 9% it is about ₹1.5 crore. Try your own numbers below.

How Long Should the Cover Last?

Match the term to the years your family depends on you. That usually means until you retire, around age 60 to 65, or until your loans are paid off and your children are independent, whichever comes later. Insurers let you buy cover to age 85, 99, or even 100, but the longer the term, the higher the premium. Paying extra to insure years when nobody depends on your income rarely makes sense. For a 32-year-old, cover to 60 or 65 is enough for most families.

What Does Term Insurance Cost?

Your age at purchase is the biggest factor. This table shows annual premiums for ₹1 crore of cover to age 60 for a non-smoking man, as the median of five large insurers (May 2026):

Waiting from 30 to 40 raises the price by two-thirds, and at 45 it is more than double. Cover to age 65 or 70 costs more: in September 2026, Ditto's quotes for ₹1 crore at 30 ran from about ₹12,100 (LIC Digi Term) to ₹14,600 (HDFC Life), and about ₹20,000 to ₹25,300 at 40. Smokers pay roughly 50% to 70% more, and women pay 15% to 30% less. Medical history and occupation also move the final quote, so compare at least three insurers. The ₹2 crore policy in our example would cost roughly ₹21,000 a year at 32.

Choose the Details That Matter

• Payout style. A lump sum, monthly income, or a mix. Monthly income plans usually cost less, and increasing-income plans cost the most. Because most families need their loans cleared at once, a lump sum or a mix is usually safer.
• How you pay. Regular pay gives the lowest annual premium. Limited pay shortens the payment period but raises each payment. For ₹1 crore at 30 to age 65, Axis Max quotes ₹12,296 a year for regular pay, ₹27,543 for 10 years, and ₹21,141 for 15 years. That totals about ₹2.75 lakh and ₹3.2 lakh, against about ₹4.3 lakh for regular pay.
• Riders. Accidental death, critical illness, and waiver of premium add cost, and IRDAI caps total rider premiums at 30% of the base premium. A critical illness rider ends with your policy, so many advisers prefer a separate health policy.
• Modest incomes and homemakers. Some insurers offer ₹1 crore of cover on an income of about ₹4 lakh. Homemakers can usually be covered too, typically for up to half of the earner's cover.
• Where you buy. Plans bought directly online are often cheaper than those sold through an agent, although how much cheaper varies. Ask for a quote for the same plan both ways before you decide.

Is Return of Premium Worth It?

Return-of-premium plans refund what you paid if you outlive the policy, and they charge heavily for it. For a 30-year-old man buying ₹1 crore of cover to age 60, SBI Life's return-of-premium plan costs ₹26,472 a year, against ₹11,266 for pure term. At 60, the refund is ₹7.94 lakh, which is just the premiums paid.

Suppose you bought pure term instead and invested the extra ₹15,206 every year. At a 7% return, that grows to about ₹14.4 lakh, and to ₹17.2 lakh at 8%, before tax. The break-even return is about 3.6% a year, close to a bank deposit rate. And ₹7.94 lakh received in 30 years is worth only about ₹1.4 lakh in today's money at 6% inflation. Return of premium can suit someone who would never invest the difference. For everyone else, pure term wins on these numbers, though market returns are never guaranteed.

Check the Insurer's Claims Record

A policy is only worth what it pays. According to IRDAI's annual report for 2024-25, insurers handled 10.34 lakh individual death claims that year:

Repudiations are higher by amount than by number, which suggests larger claims are challenged more often. Insurers also publish their own ratios, and large private insurers often report above 99%; HDFC Life, for example, reported 99.68% for that year. Compare both the number-based and amount-based figures.

Repudiation comes under Section 45 of the Insurance Act. Within three years of the policy starting, an insurer can challenge it for fraud or for a misstated or hidden material fact, such as smoking, drinking, or a medical condition. After three years, a policy generally cannot be challenged. So disclose everything, even if it raises your premium.

Common Mistakes to Avoid

• Relying only on employer cover. It usually ends with the job, and a layoff is when you can least afford to be uninsured. Our guide on preparing financially for a layoff explains what else to secure.
• Waiting. Premiums rise roughly 5% to 7% for every year you wait, and health problems can make cover costlier or unavailable.
• Picking a round number. ₹1 crore is a habit, not a calculation.
• Hiding habits or health issues. The saving is small, and the risk is a rejected claim.
• Never revisiting the cover. A new loan, a child, or a raise changes the answer, so recalculate after each. You can also compare a plan's true return with our policy return calculator.

Sources and References

• IRDAI Annual Report 2024-25
• Nyvo: cost of ₹1 crore term insurance by age
• Ditto: ₹1 crore term insurance premiums
• Ditto: maximum sum assured by age
• Ditto: income criteria for term insurance
• Ditto: SBI Life return of premium vs pure term
• Ditto: limited pay vs regular pay premiums
• Cafemutual: GST exemption on individual life and health policies
• Ditto: term insurance tax benefits
• HDFC Life: claim settlement ratio, FY 2024-25

Premiums are indicative public quotes as of September 2026 and change with your age, health, and insurer. The worked example uses the assumptions stated above. Check the insurer's own quote before you buy.

This analysis is for educational purposes only and does not constitute investment advice.