How Much Term Insurance Do I Actually Need? A Salaried Indian’s Honest Guide
My father bought a life insurance policy in the 1990s. He paid premiums for 25 years. When he passed, my mother got ₹8 lakhs.
Eight lakhs. After a quarter century of payments. That money lasted about 14 months.
That experience is why I take term insurance seriously. And it is also why I want to write this the honest way — not the way insurance agents explain it, where every answer somehow ends with: buy a bigger policy.
The real question is this: if something happens to you tomorrow, how much money does your family actually need to keep going? Not to survive — to keep going. Everything else in this article is just the math around that one question.
What this article covers
First, understand what term insurance actually is
Term insurance is the purest form of life cover. You pay a fixed premium every year. If you die during the policy term, your family gets the sum assured as a lump sum. If you survive the term, the policy ends and you get nothing back.
That last part is what puts people off. “Nothing back? Then what is the point?”
The point is that the premium is so low precisely because there is no return component. You are not paying for savings or investment — you are paying for pure protection. And that is exactly what you want.
A ₹1 crore term insurance cover for a 30-year-old healthy non-smoking male costs roughly ₹10,000 to ₹13,000 per year as of 2026 (Business Standard, January 2026). That is less than ₹1,100 per month. For that, your family receives ₹1 crore if you are no longer around. Compare that to ULIPs or endowment plans where you pay 5 to 8 times the premium for the same cover. Term insurance wins on pure math, every time.
The GST exemption that cut your premium by up to 18%
Many people still do not know about this. At the 56th GST Council meeting on 3 September 2025, Finance Minister Nirmala Sitharaman announced a full exemption of GST on all individual life and health insurance premiums. It came into effect on 22 September 2025, confirmed by the Department of Financial Services, Ministry of Finance.
Before this, every term insurance premium carried 18% GST on top. If your insurer quoted ₹12,000, you were actually paying ₹14,160. That extra ₹2,160 a year was tax — not cover.
Now? The quoted premium is what you pay. Nothing extra.
One important detail: the GST exemption applies only to individual policies. Group term insurance through your employer still attracts 18% GST. This is one more reason to own a personal term policy separately from whatever your employer provides.
The thumb rule everyone uses — and why it is just a starting point
The most commonly cited rule: your term cover should be 15 to 20 times your annual income.
If you earn ₹10 lakhs a year, your cover should be ₹1.5 crore to ₹2 crore. This rule exists because it roughly accounts for inflation, replaces your income for 15–20 years, and gives your family time to stabilise without your salary. It is not a bad rule. But it is a rough one.
Insurers themselves typically calculate your coverage eligibility at 10 to 25 times your annual income depending on your age (Ditto Insurance, February 2026). The thumb rule keeps you in the right neighbourhood. But for an honest personal number, you need the calculation below.
A 32-year-old with a home loan, two young children, and ageing parents who depend on him needs a very different cover from a 32-year-old who is single, renting, and has no dependents. The thumb rule treats them the same. Reality does not.
The right way to calculate your exact cover
Set the thumb rule aside for a moment. Ask yourself four honest questions:
1. What are my outstanding liabilities?
Add up every loan that would fall on your family if you were gone: home loan outstanding balance, car loan, personal loan, credit card dues. This entire amount needs to be covered. Your family should not have to sell the house to pay a bank.
2. How much does my family spend per month?
Rent or home maintenance, school fees, groceries, utilities, medical expenses — all of it. Multiply by 12 to get the annual number. Now multiply that by the years until your youngest dependent becomes financially self-sufficient. That is how long your income needs to be replaced.
3. What are the big future expenses?
Children’s higher education, their wedding — these are lump-sum costs that will arrive in 10 to 20 years. A decent engineering or medical degree today can cost ₹20 to ₹40 lakhs. Add a realistic number here.
4. What assets does your family already have?
Your EPF balance, savings, PPF, fixed deposits, any property that can be sold — deduct all of this. Your family is not starting from zero. Existing assets reduce the cover you actually need.
The formula: Outstanding liabilities + (Monthly expenses × 12 × Years of income replacement needed) + Future big expenses − Existing assets = Cover required
A real example — Vikram’s calculation
Vikram is 33. He earns ₹12 lakhs a year. His wife does not work. They have one child, age 4. His parents are partially dependent on him.
| Component | Vikram’s numbers (₹12L income, age 33) | Your number |
| Outstanding home loan | ₹45 lakhs | _________ |
| Other loans (car, personal, credit card) | ₹0 | _________ |
| Monthly expenses × 12 × years* | ₹7.8L × 22 = ₹1.71 Cr | _________ |
| Children’s education + wedding | ₹30 lakhs | _________ |
| Dependent parents’ needs | ₹15 lakhs | _________ |
| Less: Existing assets (EPF, PPF, savings) | –₹12 lakhs | _________ |
| TOTAL COVER NEEDED | ≈₹2.54 crore | _________ |
* Monthly expenses of ₹65,000. Years until child becomes independent: roughly 22 (child is 4; independent at 26). Income replacement amount does not adjust for inflation — so your real cover need is likely slightly higher; treat this as a floor, not a ceiling.
Vikram needs ₹2.5 crore of cover. If he had just used the 15x thumb rule on his ₹12 lakh income, he would have bought ₹1.8 crore — leaving a ₹70 lakh gap his family would have had to absorb somehow.
Use the “Your number” column for your own honest calculation. Most salaried people in their 30s with a home loan and dependents land between ₹1.5 crore and ₹3 crore.
How long should your policy run?
A very common mistake: buying a 20-year policy at age 30, which means coverage ends at 50. But your biggest financial responsibilities — home loan EMIs, children’s education, supporting ageing parents — could all still be live at 50.
The right tenure is roughly until you turn 60 to 65. That is when most people retire, have paid off their loans, and their children are financially independent. Cover yourself until then.
If you are 30 today, buy a 30-year or 35-year term policy. The annual premium is slightly higher for a longer term, but not dramatically so — and the protection gap you close is enormous.
Which insurer should you choose? — FY2024-25 claim settlement data
A term plan is only as good as the insurer’s willingness to pay. The IRDAI (Insurance Regulatory and Development Authority of India) requires all life insurers to publish their Claim Settlement Ratios (CSR) — the percentage of death claims they actually pay. Here is where the major insurers stood in FY2024-25:
| Insurer | FY2023-24 CSR | FY2024-25 CSR | Annual Premium* (₹1 Cr) | Buy Online? |
| Axis Max Life | 99.65% | 99.70% | ₹9,800–₹12,500 | Yes |
| HDFC Life | 99.50% | 99.68% | ₹10,150–₹13,000 | Yes |
| Tata AIA Life | 99.13% | 99.41% | ₹10,150–₹12,000 | Yes |
| ICICI Pru Life | 99.17% | 99.34% | ₹10,800–₹14,000 | Yes |
| SBI Life | 96.65% | 97.05%† | ₹12,000–₹15,000 | Yes |
| LIC | 98.62% | 98.15% | ₹14,000–₹18,000 | Partial |
Sources: Axis Max Life audited financials FY2024-25 (The Wire, May 2025); HDFC Life public disclosures (hdfclife.com); Tata AIA public disclosures (tataaia.com); ICICI Pru Life (Ditto Insurance, Feb 2026). †SBI Life FY2024-25 estimate based on quarterly disclosures; full-year IRDAI report expected mid-2026. Premiums are indicative annual figures for a 30-year-old non-smoking male, ₹1 crore cover, 30-year term, online purchase.
Three things to note from this table:
- All top private insurers are above 99% CSR. The gap between them is tiny. Do not let one insurer’s marketing campaign on “highest CSR” drive your entire decision.
- Besides CSR by count, check the Amount Settlement Ratio (ASR) — the percentage of total claim value actually paid. An insurer could settle many small claims quickly while quietly disputing large ones. Aim for ASR above 97% (Finvastra, May 2026).
- Always buy online. Online term plans from every insurer on this list are meaningfully cheaper than what an agent sells offline.
Riders: what to add and what to skip
Riders are optional add-ons that enhance your base plan. Some are genuinely useful. Others are sold hard because they are profitable for the insurer.
| Rider | What it does | Worth adding? | Extra cost/year (approx.) |
| Waiver of Premium (Disability) | Future premiums waived if you become permanently disabled. Policy stays active. | Yes — must-have | ₹500–₹1,500 |
| Critical Illness | Lump sum on diagnosis of listed illnesses (cancer, heart attack, stroke, kidney failure, etc.) | Yes — if no separate CI policy | ₹3,000–₹8,000 |
| Accidental Death Benefit | Extra payout over base sum assured if death is specifically accidental. | Optional — situational | ₹1,000–₹3,000 |
| Return of Premium (TROP) | All premiums returned if you survive the policy term. Sounds great. Isn’t. | No — premium is 30–40% higher. Invest the difference in a SIP instead. | ₹4,000–₹12,000 extra/year |
Source: Tata AIA, Policybazaar, Algates Insurance rider guides (2026). Costs are indicative annual additions to base premium.
Short version: add Waiver of Premium (non-negotiable) and Critical Illness if you do not have a standalone CI policy. Skip Return of Premium — the extra ₹4,000 to ₹12,000 per year you would pay, invested in a
SIP at 12% CAGR for 30 years, would grow to significantly more than what gets returned at maturity.
Is ₹1 crore actually enough?
The ads make ₹1 crore sound like a fortune. For most salaried people in metros earning ₹8 to ₹12 lakhs a year with a home loan and young children, it is probably not enough.
At 6% annual inflation, ₹1 crore today buys roughly ₹50 lakhs worth of goods in 12 years. If your family needs to live off that corpus for 20 years — paying rent, school fees, medical costs — it will run short.
According to Swiss Re’s Asia-Pacific mortality protection research, Indian households are among the most vulnerable globally when the breadwinner passes away. The protection gap in India has been consistently large, with life insurance covering only a fraction of what families actually need.
However, ₹1 crore is far better than nothing — which is still where too many Indian families sit. If budget is tight right now, start with ₹1 crore. Some plans allow you to increase cover at life milestones like marriage or a child’s birth without fresh medical underwriting. Do not let perfect be the enemy of good.
The four biggest mistakes people make with term insurance
First: buying from the first agent who calls, or taking whatever the bank bundles with your home loan. Banks routinely sell cover that is just enough to clear the outstanding loan — leaving your family with nothing extra to live on. Always buy separately on a comparison platform like Policybazaar or Ditto Insurance.
Second: the cost of delay. At 28, a ₹1 crore policy might cost ₹8,000 to ₹9,000 a year. The same person waiting until 35 will pay ₹14,000 to ₹18,000 for the exact same cover (AgeWealth, March 2026). That is an extra ₹6,000 to ₹9,000 every single year, for 30 years, just because they waited. Health conditions that develop in the gap — diabetes, hypertension, even a minor surgery — can push premiums even higher or result in outright rejection.
Third: not disclosing health conditions honestly when applying. If your family needs to claim and the insurer finds undisclosed information, the claim gets rejected. The entire point of having the policy disappears. Disclose everything — the insurer will factor it into the premium, but your family will actually get paid.
Fourth: not reviewing your cover as your life changes. Your salary goes up, you take a bigger home loan, you have a second child — your cover needs to keep pace. At the same time, your EPF balance grows and your loans reduce — so the gap narrows from the other side too. Review your cover every 3 to 5 years.
What to do this week
Do not close this tab without doing at least the first two steps. Here is a practical action plan:
- Run your needs-based calculation using the table in this article. Be honest about your home loan outstanding, monthly expenses, future education costs for your children, and your existing assets. Your real cover number is probably different from what you currently hold.
- Check your existing policies. Log into your insurer’s portal or call them to confirm the sum assured, the policy term, and the nominee’s details. Update the nominee if circumstances have changed — a common oversight that causes real problems at claim time.
- Compare plans on Policybazaar or Ditto Insurance. Filter for a 30-year term (or until age 60 to 65), non-smoker, your required sum assured. Sort by CSR first, then premium. Ignore any plan without CSR data.
- Shortlist two insurers — both with CSR above 98% and ASR above 97%. Confirm the riders available and add Waiver of Premium at minimum. Check if Critical Illness is available as a separate payout (not accelerated, where it reduces the death benefit).
- Apply online directly on the insurer’s website — not through an agent. Fill in your health history accurately and completely. Complete the medical check-up if required. Policy issuance typically takes a few working days after the check-up.
One last thing: if you are upgrading an existing policy, do not cancel the old one until the new policy is fully issued and active. There is no grace period between policies, and a gap in coverage, even for a few days, is a real risk.
Related reading on The Salary Investor
- HRA Exemption Now Covers Pune, Bengaluru, Hyderabad
- EPF Mistakes Salaried Employees Make (And How to Fix Them)
- Is Your Employer Health Insurance Actually Enough?
- NPS vs PPF: Which Is Better for Retirement?
- Financial Planning for a Baby in India
Disclaimer: This article is for general educational purposes only and does not constitute financial or insurance advice. Premium figures are indicative ranges from publicly available insurer data as of June 2026. Actual premiums depend on your age, health, smoking status, insurer, and plan features. Claim settlement ratios are sourced from individual insurer public disclosures as mandated by IRDAI; they are updated annually and subject to change. Please compare plans on IRDAI-registered platforms and consult a SEBI-registered financial advisor before making any insurance decision.
Sources: Department of Financial Services, Ministry of Finance — Exemption of GST on Individual Life and Health Insurance Policies (Government of India, September 2025) · Business Standard — Best Term Insurance Premiums for Professionals (January 2026) · HDFC Life — Claim Settlement Ratio FY2024-25 (99.68%) · Axis Max Life — Claim Settlement Ratio FY2024-25 (99.70%) (Audited Annual Financials FY2024-25) · Tata AIA Life — Claim Settlement Ratio FY2024-25 (99.41%) · Ditto Insurance — ICICI Prudential Claim Settlement Ratio FY2024-25 (99.34%) (February 2026) · Ditto Insurance — Term Insurance Eligibility by Salary, India 2026 (February 2026) · AgeWealth — Term Insurance Cost by Age India 2026 (March 2026) · Finvastra — Term Insurance Claim Settlement Ratio 2024-25 (May 2026) · Swiss Re — Closing Asia’s Mortality Protection Gap · Business Standard — GST exemption on life, health policies (September 2025)
He figured out most of what he knows about personal finance not from courses or advisors, but from years of reading, making mistakes, and fixing them. The Salary Investor is his attempt to save other salaried Indians the same time and money.
He is not a CA or a SEBI-registered advisor. He writes as a fellow salaried person who has been in the trenches — navigating EPF, ITR, 80C, salary slips, and market volatility.