How Much Life Insurance Do I Need
InsuranceThe required life insurance sum assured is calculated to replace lost income for dependents, clear all outstanding liabilities, and fund important future goals if the insured dies. A simple formula: 15-20x annual income + all outstanding loans + children's education corpus.
In detail
Life insurance need calculation:n1. Income replacement: Annual income x 15-20 years (based on remaining earning years and dependent count)n2. Liability clearance: Home loan outstanding + other EMIsn3. Goal funding: Children's education and marriage estimatesn4. Less spouse's income: if spouse earns, reduce by 10-15x their annual incomennExample for 32-year-old earning Rs 18L/year:n1. Income replacement: Rs 18L x 20 = Rs 3.6 Crn2. Home loan outstanding: Rs 60Ln3. Child education (10 years away, Rs 50L today, inflated to Rs 90L): Rs 90Ln4. Less spouse income Rs 8L x 15 = Rs 1.2 CrnNet coverage needed: Rs 3.6 + Rs 0.6 + Rs 0.9 - Rs 1.2 = Rs 3.9 CrnnRound up to Rs 4 Cr. Buy Rs 2 Cr now + Rs 2 Cr additional when income grows.
Formula
Real-life example
Rohit (35): Rs 25L income, Rs 80L home loan, two kids (education Rs 1.5 Cr combined in future value), wife Rs 0 income (homemaker). Coverage: Rs 25L x 20 = Rs 5 Cr + Rs 80L loans + Rs 1.5 Cr education = Rs 7.3 Cr. He currently has Rs 1 Cr group term from employer (stops when he changes jobs). He needs Rs 6.3 Cr personal term insurance ASAP.